Licensed Valuer and When you Need One in China

When do you need a Licensed Valuer in China?

In North America and Europe, due to the complexity of the tax system, one segment that requires the assistance of a valuation professional is in the area of taxation. This is also true in the PRC. Many corporate reorganizations, mergers and acquisitions, and divestitures require a valuation report to be submitted to the tax and other regulatory bodies within the PRC.

Currently, both firms and individuals can obtain valuation licenses in the PRC. For individuals, they can obtain their Certified Public Valuer (CPV) designation through the enrollment and passing of the professional curriculum set out by the China Appraisal Society, while corporations that provide valuation services can obtain a firm license from the Ministry of Finance through meeting certain requirements.

In general, for purposes of tax filings, a licensed valuer may be required to perform valuations related to debt restructuring, mergers, and acquisitions, and carve out of businesses, particularly if preferential tax treatment is sought under special reorganization rule, or the fairness of the transaction price is questioned by the tax authority (e.g., related party transaction, substantially lower than the market price, etc.). Share and asset acquisition valuations for submission to the tax bureau are further categorized as direct and indirect transfers. For direct transfers, a licensed valuer is required to perform the valuation while indirect transfers can be performed by valuation firms that do not have a license.

A direct transfer relates to sharing or asset acquisitions of a PRC entity while an indirect transfer is where the shares or assets being transferred are a non-PRC entity but hold a PRC operation within its corporate structure. For example, if a PRC Company is transferring its HK Company which holds a PRC Subsidiary, a non-licensed valuation firm can be engaged to prepare the valuation of the HK Company for tax filing purposes (though in some cases, a valuation report issued by a licensed valuation firm for the PRC entities transferred indirectly may be required in order to determine the gains attributable to the equity and/or assets located in China for China tax purposes). However, if the PRC Company is transferring the PRC Subsidiary directly, then a licensed valuation firm may be required to provide the valuation of the PRC Subsidiary, particularly for transactions between related parties.

An added complexity is that for State Owned Enterprises (SOEs) any acquisitions or divestitures that they pursue must also be submitted to the State-owned Assets Supervision and AdministrationCommission (SASAC) for approval. All valuation submissions to SASAC require a licensed valuer. As such, SOEs, typically would obtain valuation services from a licensed valuation firm to provide valuation services for their valuation needs as most valuation submissions to SASAC would also be submitted to the tax bureau.

The rules in the PRC are complex and the tax bureau and regulatory bodies may have different requirements. Practices may also vary among regional tax and regulatory bodies. It is wise to check with the lawyers/tax professionals or the local regulatory bodies’ requirements before engaging a valuation professional in the PRC.


Written by: Edwina Tam, iiBV Education Committee Chair

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