SAFE Regulations Affecting Inbound and Outbound Payments in Cross-border M&A Transactions within the People’s Republic of China

SAFE Regulations Affecting Inbound and Outbound Payments in Cross-border M&A Transactions within the People’s Republic of China

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Recently, the Chinese government tightened its policies on foreign exchange and taxes with respect to cross-border mergers and acquisitions ("M&A") transactions. Local government authorities with oversight over foreign currency issues are now given discretion to deny applications to properly register funds designated for M&A transactions in China. In addition, a tax certificate is now required before funds can be remitted offshore. As a result, we believe it will generally take more time to complete M&A transactions and that those not in compliance with the requisite foreign exchange and tax laws in China will be more frequently subject to fines and hurdles in the M&A process. In addition to complying with all PRC government regulations on foreign exchange and taxes, we recommend that parties to an M&A transaction in China consult with legal counsel to mitigate any potential negative effects the heightened regulatory environment will have on a proposed M&A deal.

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