Selling Your China Business: Equity Transfer and Exit for Foreign Investors

The following is general information on Chinese law, not legal advice for any specific matter. Rules and thresholds change from time to time, and the treatment of any transaction depends on its structure and the parties; consult qualified PRC counsel before acting.

The transfer: consent and priority purchase under the Company Law

An equity transfer in a Chinese company is governed by the Company Law, as revised in 2023 and effective 1 July 2024. Article 84 of the revised law sets out the mechanics: a shareholder may transfer equity to another shareholder freely, while a transfer to an outside party engages the other shareholders' right of first refusal and consent rules. The default rules can be varied by the articles of association, so the exit terms negotiated at formation — or the articles as they now stand — decide how smoothly a sale proceeds. A foreign seller should review the current articles and the shareholders' agreement before marketing the deal, because a consent or priority-purchase clause that was drafted loosely can delay or derail a closing.

Foreign investment reporting: the administrative layer

Separately from the corporate transfer, a foreign-invested enterprise must comply with the Foreign Investment Information Report Measures (外商投资信息报告办法), effective 1 January 2020, made under the Foreign Investment Law. Initial, change and annual reporting is done through the State Administration for Market Regulation's registration system and the National Enterprise Credit Information Publicity System (国家企业信用信息公示系统). A change of shareholders or equity is a change-reporting event, so the buyer and seller must make sure the transfer is reflected in the reporting within the prescribed periods — otherwise the transaction itself may be valid but the enterprise sits out of compliance.

Tax on the exit: the 10% withholding

The tax treatment is where the numbers bite. For a non-resident transferor without an establishment in China, the gain on the transfer of equity in a Chinese company is subject to enterprise income tax at a withholding rate of 10%, on taxable income equal to the transfer proceeds minus the equity's net value, with no deduction for undistributed profits. The statutory rate is 20% under Article 4(2) of the Enterprise Income Tax Law, reduced to 10% under Article 27(5) and Article 91 of the Implementing Regulations. The mechanics are in State Taxation Administration Announcement 2017 No. 37: the tax is withheld at source by the payer and remitted within 7 days. If the gain is effectively connected with a Chinese establishment, the 25% rate applies instead.

Two refinements matter. First, a double-tax treaty may reduce or eliminate the 10%, so treaty relief should be assessed early. Second, an indirect transfer — selling an offshore holding company whose value derives substantially from Chinese assets — may still be taxed under Announcement 2015 No. 7, even though no Chinese entity's equity changes hands directly.

Stamp duty and the closing sequence

The equity-transfer instrument attracts stamp duty under the Stamp Duty Law (effective 1 July 2022) at 0.05% (0.5‰) of the transfer amount. In practice, the closing sequence runs: sign the transfer agreement, obtain any consent and waive or exercise priority-purchase rights, update the register of shareholders, file the change with the market-registration authority, complete the foreign-investment information report, withhold and remit the tax, and only then release the balance of the price. Sequencing matters because each step is a condition of the next, and a price released too early leaves the seller with no leverage if a filing stalls.

A checklist for the foreign seller

• Read the articles and the shareholders' agreement for consent, priority-purchase and transfer restrictions before marketing.
• Scope the tax — 10% withholding (or 25% if establishment-connected), treaty relief, and whether an indirect-transfer rule applies.
• Check security review — if the target sits in a strategic sector, the Foreign Investment Security Review Measures (2021) may apply to the transaction.
• Sequence the closing — transfer, registration, reporting, tax remittance, then release of funds.
• Plan the remittance of proceeds — the after-tax proceeds must be remitted through lawful foreign-exchange channels.

For the enforcement side of a China transaction, see our guide to enforcing mortgages, pledges and guarantees in China. The rules summarised here are current as of the date of writing; tax rates, reporting periods and security-review scope are subject to the latest official rules.