M&A deal in China

Concluding M&A deals in the PRC is always a challenge. And given the recent spike in tensions between the PRC & the US, the requirements for foreign investors have become even more rigorous. If the standoff continues unabated, it can lead to the reduction in capital flows between the two countries & have very negative consequences for the world economy. It’s, therefore, important that companies’ senior management be aware of the main risks & challenges connected to conducting M&A transactions in the PRC.

Structuring Deals

Structuring M&A transactions in the PRC as JVs & independent acquisitions is a common practice. Another popular way of investment is direct investments, aka greenfield investments. To a large extent, those three types account for the bulk of international M&A transactions in the PRC. Therefore, it’s essential that participants in transactions render strategically important decisions by choosing either one of them.

Antitrust & Competition

Previously, concluding international M&A deals in the PRC required investors to apply for a permit in North America & the EU. Nowadays, Chinese authorities carefully scrutinize all international transactions to determine its potential impact on the country’s competitive environment. Hence, it has the potential of significantly affecting the conclusion of international M&A deals in the Republic of China.

Initiating international M&A deals in the PRC requires:

• assessing the relevant legal framework;
• submitting an application; 
• getting expert advice on managing international M&A deals in the PRC.

IP

Effective IP protection is the main reason why quite a few foreign entrepreneurs are looking forward to acquiring a Chinese company. However, despite ongoing reforms, IP-related risks are still a matter of major concern for the majority of foreign companies. To protect themselves against at least some of them, they must seek advice on protecting IP rights in the PRC:

• consultation on patent registration in China;
• advice on obtainment of copyright protection in the PRC;
• consultation on TM registration in China.

Risks

As mentioned above, the conduct of international M&A transactions in China entails many risks, including regulatory & political challenges & risks connected with the repatriation of capital.

Taxes

Those looking to sign an M&A deal in the PRC should keep in mind that income tax is levied on government-owned & private companies.. Starting from 2018, VAT has been levied on income generated from providing services & engaging in import/export activities. Additional taxes have recently been levied on income earned from the sale of luxury goods; also, a stamp duty has been imposed on certain transactions.