Under China’s New Company Law, stakeholders must pay subscribed capital within 5 years. Interest expenses related to loans are deductible, but restrictions apply. Consulting experts for tax planning is crucial.
Understanding the New Tax Implications in China
Under China’s New Company Law, companies and stakeholders face new tax implications. It is crucial to have a thorough understanding of the law and consult with legal and tax experts to effectively manage risks. Shareholders of Limited Liability Companies (LLCs) are required to pay their subscribed capital within five years, and interest expenses on external loans may be eligible for pre-tax deduction, with certain restrictions in place.
Implications for Companies, Shareholders, and Creditors
The implementation of the New Company Law will impact companies, shareholders, and creditors in terms of tax obligations. Before making decisions related to capital contributions, equity transactions, or capital reduction, it is advisable to carefully assess the tax implications and develop a strategic approach to tax planning and financial management under the new regulations.
Pre-Tax Deduction Restrictions and Capital Contribution Requirements
Article 47 of the New Company Law specifies that shareholders of LLCs must fully pay their subscribed capital within five years, including existing companies. Interest expenses on external loans are eligible for pre-tax deduction, but if the capital amount is not paid within the specified period, restrictions on deduction may apply, particularly with the introduction of the 5-year contribution term requirement in the new law.
Source : May 2024 Monthly Tax Update for China – Thailand China Business News