CHINA Law and Practice Contributed by: Chen Yanhong, Beijing DHH Law Firm
3.11 Disclosure Requirements China has disclosure requirements for specific finan- cial contracts, primarily including the following. • Listed companies: must disclose major loan and security contracts. “Major” is defined as amount exceeding 10% of the company’s net assets or affecting operations, disclosed via announcements and filings with stock exchanges. • Financial institutions: must submit data on loan/ security contracts to regulators (eg, PBOC, CBIRC) for inclusion in credit reference systems and finan- cial statistics. • Private lending: there is no mandatory public disclosure, but disclosure is required to co-operate with judicial/regulatory investigations in cases involving illegal fund-raising or false litigation. Addi- tionally, cross-border financial contracts must be filed with foreign exchange authorities (eg, foreign debt contracts). 4. Tax 4.1 Withholding Tax Withholding tax rules for payments to lenders are as follows. • Principal: no withholding tax applies to domestic or overseas payments. • Interest: for payments to overseas lenders, a 10% withholding income tax is generally withheld (preferential rates apply under tax treaties between China and the lender’s country/region, eg, 5% under the China-Hong Kong treaty). No withholding tax applies for domestic lenders (lenders include interest in taxable income to pay corporate income tax). • Other payments (eg, liquidated damages, pen- alty interest): if the payments qualify as “income derived from China,” a 10% (or treaty rate) with- holding tax is required; otherwise, no tax is required. 4.2 Other Taxes, Duties, Charges or Tax Considerations Other taxes relevant to lenders include the following.
be filed with the CSRC and stock exchanges and made public. Private acquisitions may use short-form documents, which are generally not public. There are no recent major cases; supervision focuses on verify- ing the transparency of fund sources. 3.9 Recent Legal and Commercial Developments The following two recent developments have required adjustments to legal documentation. • The Civil Code unified security rules clarify the validity of floating charge registration and abolish the absolute invalidity of “foreclosure clauses.” As a result, loan/security documents need to add provisions such as “circumstances for determining secured property” and “rectification of foreclosure clauses”. • Strengthened financial supervision (eg, amend- ments to Anti-Money Laundering Law, data secu- rity compliance) requires that documents include clauses on dynamic verification of fund use, cus- tomer identification, and data confidentiality. Additionally, green finance development has promot- ed new provisions in loan documents such as “green fund use certification” and “environmental risk dis- closure.” 3.10 Usury Laws China has usury restriction rules, which are applied differently depending on the scenario. • Private lending (between non-financial institu- tions): according to the Judicial Interpretation on Private Lending, the interest rate shall not exceed four times the one-year LPR at the time of contract formation; excess interest is invalid. Deduction of interest in advance from the principal (“head- cutting interest”) is prohibited, and the deducted portion is not counted as principal. • Financial institution loans: there is no 4x LPR limit, but interest rates must comply with PBOC and CBIRC regulations and must be “reasonable” (prohibiting excessive interest through dominant position). Additionally, lending may not disguise high interest as “service fees” or “handling fees”; any excess portion is not supported.
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