CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe
authorities (including failure to obtain per - mission or failure to carry out construction in compliance with the construction works planning permit), the project owner or devel - oper may be ordered to correct the violation and dismantle the building or structures, they may be liable to pay a fine and the illegitimate properties may also be confiscated. 5. Investment Vehicles 5.1 Types of Entities Available to Investors to Hold Real Estate Assets Under the Company Law, the types of compa - nies include limited liability companies ( 有限责任 公司 ) and limited companies by shares ( 股份有限 公司 ). The liability of each shareholder of either a limited liability company or a limited company by shares is limited to its respective subscribed capital contribution to the company. Limited lia - bility companies are the most common choice for acquiring real estate assets among both domestic and offshore investors. 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity Both limited liability companies and limited com - panies by shares are formed and governed by their articles of association ( 章程 ), which also govern their shareholders, directors, supervisors and officers, in addition to the companies them - selves. These provide for, among other things, capital contributions, shareholding percentage, governance rights, distribution rights, dissolu - tion and liquidation matters. Both limited liability companies and limited com - panies by shares that hold real estate are subject to property tax and urban land use tax, as men - tioned in 8.3 Municipal Taxes , and have access to tax benefits as mentioned in 8.5 Tax Benefits .
There is no substantial difference in terms of tax costs, as mentioned in 2.10 Taxes Applicable to a Transaction , incurred as a result of purchase of real estate to limited liability companies and limited companies by shares. 5.3 REITs China officially launched a pilot scheme on public REITs in the infrastructure field in 2020, which was further broadened on a pilot basis, to include department stores, shopping malls, and marketplace for agricultural products. Foreign investors can initiate these vehicles subject to satisfaction of “commercial presence” require - ment and other qualification requirements, such as sound creditworthiness, robust internal con - trol system, consistent business operations, and material legal compliance in past three years. Using a REIT can improve cash flow and asset- liability ratio, and increase asset turnover ratio of an enterprise. Recently, Shanghai and Shen - zhen Stock Exchanges are, at the same time, exploring the introduction of private REITs to supplement public REITs and the first private REIT product is under way. 5.4 Minimum Capital Requirement The minimum capital for companies engaging in real estate development may not be less than CNY1 million. 5.5 Applicable Governance Requirements A Limited Liability Company Pursuant to the Company Law (as amended in 2023, and coming into force on 1 July 2024), a limited liability company shall have: • less than 50 shareholders and a shareholders’ assembly consisting of all the shareholders (or sole shareholder), which is the highest authority of the company;
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