Return investment: refers to the direct investment activities carried out by domestic residents directly or indirectly through special purpose companies in China, that is, establish foreign-invested enterprises or projects (hereinafter referred to as foreign-invested enterprises) in China through new establishment, mergers and acquisitions, and obtain control rights, management rights, and other rights and interests.
Detailed analysis of professional terms
Special-purpose company: refers to a domestic resident (including domestic institutions and domestic resident individuals), who directly invests and finances domestic enterprise assets or interests legally held by them, or overseas assets or interests legally held by them for the purpose of investment and financing. Most of the overseas enterprises established or indirectly controlled are offshore companies.
Foreign-invested enterprise: refers to an enterprise established within the territory of China in accordance with Chinese laws, and jointly invested by Chinese investors and foreign investors or invested by foreign investors alone.
To put it simply, China's State Administration of Foreign Exchange stipulates that return investment means when domestic residents, whether they are domestic natural persons or domestic enterprises, want to control our domestic enterprises to carry out investment activities through overseas special-purpose companies (ie spv), via different methods such as acquiring them, or opening a company in China as a foreigner to control the domestic enterprise through an agreement, so as to obtain ownership, control and management rights.
What is the purpose of return investment
1. Return investment to realize overseas IPO
Return investment is an important step for companies to achieve overseas listing. The common practice is to register an offshore company (company A) in an offshore center such as BVI or Cayman, and then register company B in Hong Kong in the name of company A, and then the private equity foundation will transfer the funds to Company B's offshore account in Hong Kong, so that Company B has funds to repurchase the assets or equity of the domestic company. This repurchase can be done through equity exchange, equity purchase or directly establish a wholly-owned foreign-funded company C in China in the name of Company B, and use this company to directly acquire the net assets of domestic companies.
2. The establishment of a wholly foreign-owned company in China
Through the return investment, you can set up a wholly foreign-owned company in China in the name of a Chinese person, enjoy preferential policies and obtain a good international image. In order to attract more foreign businessmen to invest in my country, the Chinese government has issued many preferential policies for foreign-funded enterprises, such as tax reduction, preferential prices for infrastructure such as land, water and electricity, borrowing of foreign debts and capital remittance, and providing foreign investment support and encouragement.
It is precisely due to the advantages of round-trip investment that many companies use round-trip investment as a vest to realize "fake foreign investment" in actual operations. Many domestic residents' actual controllers control domestic enterprises through overseas holding companies in the name of round-trip investment. The advantage is that you can enjoy tax benefits. Through "fake foreign investment", some private enterprises that were originally purely domestic-funded have transformed into foreign-funded enterprises, thus enjoying the tax incentives of "two exemptions and three half-reductions".
Relevant regulations on return investment
There are many "fake foreign capital" behaviors in the market, so the State Administration of Foreign Exchange has issued relevant regulations in the past few years. 75 of the State Administration of Foreign Exchange pointed out that the state allows Chinese citizens to invest and start businesses overseas, but the permission is mainly for companies or individuals that have conducted overseas IPOs, rather than encouraging nationals to use overseas companies to set up foreign capital in China. If the enterprise has registered an offshore company and wants to set up a foreign-funded enterprise in China through return investment, it must follow the regulations. That is, the enterprise provides the identity certification documents, equity certificates and other documents of the ultimate controlling shareholder of the overseas company for the foreign exchange administration and the Ministry of Commerce to judge whether the enterprise belongs to foreign investment or "fake foreign investment". Only after the approval of the foreign exchange administration and the commerce department, the foreign company can be established in the country in the name of an overseas company.
