From www.hewn.com
On May 29, 2007, the State Administration of Foreign Exchange of China (SAFE) issued “Operating Procedures Clarifying Equity Finance and Return Investments by Domestic Residents Through Offshore Special Purpose Vehicles”, further clarifying its earlier-released “Circular No. 75”—which relates to foreign exchange control on financing and round-trip investment by domestic residents through offshore special purpose vehicles (SPVs). The Operating Procedures impose new compliance burdens on venture capital and private equity firms involved in transactions with Chinese “round-trip” investors—that is, Chinese individuals and companies who set up offshore SPVs to invest back into
China. The Operating Procedures are linked to the foreign exchange registration requirements that are set forth in both Circular No. 75 and the
2006 M&A Regulations. They provide a detailed roadmap of the documentation and intricate registration requirements for the multiple stages of SPV financing, including:
(1) setting up the offshore SPV; (2) injecting offshore assets into the offshore SPV;(3) establishing, acquiring or investing in a PRC onshore target through the offshore SPV (i.e., round-trip investment);
(4) changing or restructuring the offshore SPV.
The Operating Procedures state that they will come into effect immediately, although they are not yet available on SAFE’s official website. Most of the new rules, however, have been known for some time as “internal guidelines” among those in the
China venture capital and private equity communities.
click here for the complete version (PDF) of the operating procedures click here for the analysis of the operating procedures(PDF)
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