A Snapshot of Typical Structures for Private Equity Market in China

Despite the dire economy in the western world, Asian private equity had a vibrant year in 2010 and has kept its momentum.  It is largely attributed to funds denominated in RMB according to a study by professional researchers.  RSM Nelson Wheeler, a prominent accounting and consulting firm based in Hong Kong recently issued its November newsletter where it explored the typical structures and related tax issues for private equity activities in three of the most active markets in Asia including Hong Kong, mainland China and Singapore.  The newsletter summarized, among other things, the most common three PE structures used by U.S. persons, including:

·        US limited partnership

·        Offshore investment company

·        Master-feeder structure

In the first structure, the limited partnership is formed in the U.S. This structure type is simple and relatively low cost.  Under an offshore investment structure, the PE fund is generally set up as a company outside the U.S. in a tax-neutral area (such as Cayman Islands).  A Master-Feeder structure is a combination of the first two when the PE fund includes both US investors and non-US investors. 

The article also addressed the tax consequences and specific preferential treatment in the three hot areas.  It is a very good article for beginners and a full copy is available upon request.  

Posted by: Pei Zhang

Categories: China Desk