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‌Quotation

VIE / Red-Chip Structure Establishment

VIE
Red-Chip Structure

A VIE Structure (Variable Interest Entity) refers to a structure where an overseas entity exercises actual control over a domestic operating entity through a series of control agreements rather than direct shareholding.
A Red-Chip Structure refers to a structure where an overseas holding entity, by establishing or controlling a domestic foreign-invested enterprise (such as a WFOE), legally holds the equity of the domestic operating entity to achieve control at the equity level.

APPLICATION SCENARIO

The Red Chip Structure is usually applicable to industries that do not involve foreign investment access restrictions (such as certain manufacturing, consumer, and new energy sectors), with its control relationship established at the equity level.
The VIE Structure is mostly adopted in industries subject to foreign investment access restrictions or special regulation (such as certain segments of the internet, education, and media sectors), with its control relationship established on the basis of contractual arrangements.

ADVANTAGE

Clear Legal Foundation

The Red-Chip Structure Controls Domestic Entities through Equity Ownership, with Clear Legal Relationships and in Compliance with the Regulatory Requirements of Mainstream Listing Destinations.

Tax Compliance Arrangement

In accordance with the Tax Agreement between Hong Kong and the Mainland, the dividend withholding tax rate can be reduced to 5% (the general tax rate is 10%).

Industry Applicability

Contractual Control (VIE Structure) Applies to Industries with Restricted Foreign Investment Access, Such as the Internet, Education, Media, etc.

Financing Arrangement

Introduce Overseas Capital through the VIE Structure to Connect with Markets such as the US Stock Market and Hong Kong Stock Market

Business Separation

Through agreements between the WFOE and the VIE entity, distinguish between unrestricted businesses and restricted businesses.

CONSTRUCTION PROCESS

  • 1

    Establish an Overseas Listed Entity

    Usually a Cayman Islands Company

    Taking the Red-Chip Structure as an Example, the Most Conventional Structural Process

  • 2

    Establish an Overseas Intermediate Holding Company

    Such as BVI Companies and Hong Kong Companies
  • 3

    Wholly Foreign-Owned Enterprise (WFOE) Registration

    The Intermediate Holding Company Establishes a Wholly Foreign-Owned Enterprise (WFOE) within the Territory of China
  • 4

    The WFOE Controls the Domestic Operating Entity through Equity Means

CUSTOMER CASE

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