Alternative Funds 2025 Comparisons

China’s regulatory framework for private funds has gradually matured and become more sophisticated over the past decade. A comprehensive regulatory system has been established, comprising the China Securities Regulatory Commission (CSRC) and the Asset Management Association of China (AMAC) at its core and other applicable authorities, mainly including the National Financial Regulatory Administration (NFRA, formerly known as the China Banking and Insurance Regulatory Commission (CBIRC), as the primary regulator for insurance investors), the State Administration of Foreign Exchange (SAFE, as the regulator for cross-border capital remittance), and local counterparts of the Administration for Market Regulation (AMR, as the regulators for enterprise registration).

In general, China maintains a registration/filing system for all private funds. A private fund manager has to complete a registration process with AMAC before it can conduct any fundraising activities, and a filing has to be made for any private fund promptly after it has been closed.

In addition, certain local pilot programmes such as the Qualified Foreign Limited Partner (QFLP), the Qualified Domestic Limited Partner (QDLP) and/or the Qualified Domestic Investment Enterprise (QDIE) also involve an approval procedure at the local government level. Once “approved”, a fund manager can then carry out the fund management businesses contemplated in the relevant local regulations. Local financial services offices or similar authorities (FSOs) typically lead a local joint committee to carry out the approval functions.

According to AMAC’s statistics, as of June 2025, there are 19,756 private fund managers with a total of 140,558 private fund products and an aggregate asset size of RMB20.26 trillion. From a regional perspective, the cities and/or provinces with more than 1,000 private fund managers and trillion-level AUMs include Shanghai, Beijing, Shenzhen, Guangdong Province (excluding Shenzhen), and Jiangsu Province. Such geographical distribution also largely corresponds to the favourable locations that global sponsors would typically consider and tend to choose for the establishment of their private fund managers and funds in China.

In terms of fund manager registration and deregistration, AMAC has adopted a regulatory attitude of “strict entry, lenient exit” over 2024 and the first half of 2025, further tightening control over the entry of new managers and streamlining the overall sector. The average number of new fund manager registrations per month has been kept at around 13 (with new private equity fund managers typically outnumbering those in the securities fund category). Meanwhile, the average number of deregistered fund managers per month has reached approximately 114. In terms of fund numbers, early-established funds have started to enter their liquidation cycles, with many completing their winding-up and deregistration processes in succession. Overall, the number of private fund managers has declined, while the numbers of funds products and aggregate assets under management remain stable, perhaps with a slight decrease in numbers.

As a result of a top-level design shift and redirection away from “profit capital” to what has been called “long-term patient capital”, it is possible to predict that the private fund market in China will continue to mature and become more dynamic with the participation of national social security funds, insurance capital, government-guided funds, and other professional institutional investors making up “long-term patient capital.”

The State Council promulgated the first administration regulation in the private funds sector of China in July 2023. This regulation outlines qualification requirements and major duties of fund managers and custodians, principles for fundraising and investment operation, special treatments for venture capital funds, supervision by the CSRC and consequences for violating the applicable compliance requirements.

Following this, at the end of 2023, the CSRC released for public consultation the draft Administrative Measures on Supervision and Administration of Private Investment Funds. The draft proposed tighter requirements on fund managers, custodians, fund service providers, private fund products, and qualified investors (QIs), rules on fundraising and funds’ ongoing compliance, etc. The draft Administrative Measures have not yet been finalised or promulgated.

National-level relevant authorities are drafting regulations on the QFLP and QDLP with the purpose of unifying local QFLP and QFLP pilot programmes. These regulations have not yet been promulgated.

AMAC periodically issues “self-regulatory” rules, guidelines, checklists and penalty cases, in order to guide those in the sector on how best to govern themselves, further conveying and emphasising more detailed regulatory requirements and practice in the private funds sector.

Although not aimed specifically at private fund managers or funds, the amended PRC Company Law and the AMR’s beneficial owner disclosure requirements do have impacts on the structuring and operation of funds and private fund managers.

Further to the above-mentioned national-level legal and regulatory developments, a number of CSRC local counterparts requested all private fund managers within their jurisdictions to conduct special self-inspections and conducted follow-up onsite inspections in the spring of 2025. Again, this shows the continued strengthening of administration over China’s private fund sector.

AMAC categorises private funds into eight types, including private securities funds, venture capital funds, private equity funds, and their respective fund of funds (FOF), as well as private asset allocation funds (ie, funds primarily adopting an FOF approach and investing across different asset types such as securities and equities) and other types of funds (other types of funds were previously used to cover funds investing in commodities and other special sectors but have been discarded by AMAC).

Alternative funds mainly fall under the categories of private equity and venture capital. PE funds can be further subcategorised by investment focus into buyout funds, growth capital funds, real estate funds, infrastructure funds, funds investing in private placements of listed companies, distressed funds and other funds. Certain real estate funds may be qualified as pilot real estate private funds, a special type adopted under the pilot rules for real estate private funds issued in spring 2023.

In terms of legal structures, private funds can be in the forms of contractual funds, partnerships or corporations. Of these, private securities investment funds (PSIFs) are typically in the form of contractual funds as they are typically open-ended and contractual funds are not subject to AMR’s requirements of entity registrations. Private equity and venture capital funds are required to be close-ended, and primarily opt for the limited partnership mode, taking into account a full range of factors, including tax efficiency, flexible governance and operations, fewer challenges in portfolio companies’ A share IPO, etc. Corporate funds are less common and are usually seen in corporate venture capital (CVC), governmental investment platforms and funds sponsored by state-owned enterprises.

All types of private funds established in China must be filed with AMAC by their fund managers within 20 business days after completion of the initial closing.

For private funds structured as partnerships or corporations, and subject to local pre-approval of their proposed name and business scope (which must include investment), registration with the AMR and subsequent tax registration are required. Depending on local practice which varies jurisdiction by jurisdiction, it may take several weeks or even months for a partnership/corporate fund entity to obtain its business licence.

If a QFLP/QDLP/QDIE pilot quota is involved, additional application procedures will be required, initially with the local competent joint committees led by local FSOs in accordance with local pilot rules which vary jurisdiction by jurisdiction.

If the fund involves insurance investor(s) or other regulated investors such as government-guided funds, further specific compliance oversight and regulatory approvals (or in the form of no-objection letters) may apply during the whole process from pre-investment due diligence to post-investment execution and capital contribution.

During the fundraising phase, the preparation and execution of applicable fund subscription documents (including private placement memorandums or other prospectuses, investors’ information forms and suitability questionnaires, risk disclosure statements, etc) must comply with a series of regulatory requirements. The specific disclosure content includes, but is not limited to, information on the fund manager and management team, investment scope, investment strategy, investment structure, fund structure, custody arrangements, related fees, distribution principles, fund exit mechanisms, and risk factors such as investment risks, operational risks, and liquidity risks. These fund subscription documents will be submitted to AMAC for review and record at the time of the fund filing application, but will not be publicly disclosed.

Generally, upon a fund’s closing and filing with AMAC, its fund manager is obliged to do periodic and ad hoc disclosure and reporting to the investors and AMAC in accordance with relevant regulatory rules and fund contracts. While these periodic and interim reports are not publicly accessible to non-investors, AMAC will have them archived and red-flag any delayed disclosure or submission on its public disclosure platform.

Funds accepting insurance capital should additionally submit initial investment reports, and subsequent quarterly and annual reports, reports on important matters and material changes, and investment liquidation reports via the Insurance Asset Management Association of China (IAMAC) system to NFRA.

QFLP/QDLP/QDIE pilot funds should fulfil extra reporting obligations to local authorities depending on specific requirements as stipulated in local QFLP/QDLP/QDIE rules and following local practices.

Added to this, a fund in the form of a partnership or corporation will register its basic information, including its name, business scope, registered address, stakeholder(s) and senior management, etc, with the local AMR. In case of any update of such basic information, amendment registration with AMR should be made. Basic information of the fund and the fund manager registered with the AMR will be publicly available, while basic information of the fund and the fund manager as regulated entities will be published on AMAC’s website.

Generally speaking, private funds are subject to different tax policies applicable to their different legal organisational structures, unless there exist any specific tax rules because of the nature of particular funds – eg, venture capital funds.

Corporate funds are subject to the applicable provisions of the PRC Company Law and the Enterprise Income Tax Law, and are taxed in the same manner as general corporations. Dividends and other equity investment income distributed by corporate funds to resident enterprises may be treated as tax-exempt income and thus exempted from income tax. That said, if an enterprise investor transfers its shares in a corporate fund and achieves a capital gain, it will be subject to a 25% corporate income tax. For individual investors receiving income from corporate funds, such income will be taxed as either “income from property transfer” or “interest, dividends, and bonus income” with a tax rate of 20%.

Limited partnership funds are tax-transparent entities and therefore no income tax will be charged at the fund level. Each partner of the partnership is treated as a taxpayer. For individual partners, interest, dividends, and bonus income from the investment by a limited partnership fund are subject to individual income tax at a flat rate of 20%; for other incomes from a limited partnership, such income will be subject to individual income tax with tax rates ranging from 5% to 35% under a five-tier progressive tax system. The fund will be obliged to pay tax on behalf of the individual investors. If a partner is a corporation or other organisation, it is generally subject to corporate income tax at a rate of 25%. VC funds will be entitled to some favourable tax treatments.

Contractual funds are not regarded as taxable entities and are not subject to income tax. Instead, investors and fund managers are required to consolidate their respective incomes from the contractual fund and pay either corporate income tax or individual income tax accordingly.

Under the current PRC regulation, private funds are generally prohibited from engaging in lending business directly or in a disguised form, or from directly investing in credit assets and engaging in commercial private lending activities by means of entrusted loans or trust loans, etc.

Private fund managers should not directly or indirectly use fund assets for non-investment activities such as lending (or depositing), guarantees, or disguised debt investments (eg, equity with debt-like characteristics). However, a private fund is permitted to invest in convertible loans and, as an exception to the restriction on lending, a private fund may, for the purpose of equity investment, provide a loan or guarantee to its invested target for a term of no more than one year, provided that the maturity date of the loan or guarantee does not extend beyond the exit date of the equity investment, and the outstanding balance of such loans or guarantees does not exceed 20% of the fund’s paid-in capital.

On the other hand, it is in principle doable for a fund (except for venture capital funds which are explicitly prohibited from using leveraged financing) to act as a borrower to obtain bank financing. For funds managed by licensed fund management subsidiaries of securities companies subject to CSRC supervision, and funds admitting insurance investors subject to NFRA regulation, additional requirements would be applied on the fund’s leverage ratios.

Private funds are prohibited from engaging in irrelevant or conflicting businesses such as lending businesses or credit assets. Investment into the equity of companies carrying out conflicting businesses is also prohibited.

Funds investing in commodities such as fine wines, artworks or other non-traditional assets such as digital assets are categorised as “other types of funds” by AMAC, but AMAC has currently suspended filing of this type of funds. In practice, private funds are not permitted to directly invest in non-traditional alternative assets but instead may make equity investments in the portfolio companies that hold, manage and/or trade certain non-traditional alternative assets.

Private equity funds (in the context of this section, including venture capital funds) may make investments through special purpose vehicles (each an SPV). However, the risks of using an SPV should first be specifically highlighted and disclosed to investors in the risk disclosure statements during the fundraising stage. Additionally, the fund custodian is required to monitor the flow of funds between the private equity fund and the SPVs.

SPVs are frequently used for various purposes. For instance:

• An SPV is typically used as a leading applicant entity for the fund’s overseas direct investment (ODI) application in cross-border downstream investments.
• An SPV is set up to serve as the borrower of acquisition loans.
• An SPV is used to accommodate co-investment or other business collaboration strategies.

Generally, a private fund formed within China must be managed by a private fund manager formed within China and registered with AMAC. However, there is no requirement for the fund manager to be based in the same city or province where the private fund is formed except that in the case of QFLP/QDLP/QDIE funds, the local authority will in principle request the relevant fund manager to be established in the same city or province where the funds are formed.

Regardless of their domicile, private funds and their managers are subject to a uniform industrial regulatory regime – ie, the CSRC/AMAC regulation. Management team members are typically employed by the fund manager and operate at the fund manager’s independent and stable business premises, while the funds are not required to maintain actual business premises or hire local employees of their own.

In 2017, AMAC released the Trial Measures on Private Fund Service Business, requiring private fund service providers engaging in fund distributions, fund units registration, valuation and accounting, fund custody, and information technology system services to complete service provider registration with AMAC. Fund managers can only engage service providers that are AMAC members and have completed such AMAC registration to provide the named services.

AMAC publishes a list of qualified private fund service providers on its website for ease of verification.

Affected by global economic and geopolitical developments, some foreign sponsors have adopted a more cautious approach to investing in China. Vice versa, the fundraising for USD funds focusing on China investments is significantly impacted, with such funds increasingly giving way to RMB funds supported by sophisticated institutional investors and more experienced high net worth individuals (HNWIs).

At the same time, fundraising now encounters greater hurdles due to more rigorous due diligence, enhanced regulatory requirements for risk management, and the longer decision-making processes of institutional investors. Whereas fundraising once typically spanned 6–12 months, RMB funds now generally require 18–24 months to complete their fundraising cycles.

Further, due to an increasing number of PE funds coming to the end of their fund terms, there has been a boom in secondary transactions, GP-led fund restructuring and formation of secondary funds (“S funds”).

Regulation on the private fund sector and private fund market is evolving as well. The CSRC has issued draft Administrative Measures on Supervision and Administration of Private Investment Funds. Once finalised and released, it is expected to have further impacts on the sector, which are likely to include heightened criteria for QIs, enhanced look-through KYC/AML examination standards, stricter requirements on custody of funds, and tailor-made requirements for special funds, such as separately managed accounts and single-asset funds, etc.

Given its relatively short history, the sponsors in the Chinese market initially primarily consisted of reputable global sponsors recognising opportunities in China (eg, Blackstone, Carlyle, Goldman Sachs, and Morgan Stanley) and certain local sponsors experienced in managing offshore funds (eg, Hony Capital, and CDH). Over time, domestic sponsors have become important players in the RMB fund market in terms of both numbers and AUM size. Currently, fund sponsors focus on different areas and can be subdivided based on their expertise. For instance, more state-owned or governmental fund managers are formed to manage government-backed guidance funds. S fund sponsors, buyout fund sponsors, etc, are booming to meet the growing demand for secondary transactions, fund restructuring and buyout deals.

Sponsors in China usually adopt one of the two major legal structures: a limited partnership or limited liability company. A private fund manager intended to operate primarily as a cost centre typically takes the form of a limited liability company. If the private fund manager plays roles in team members’ incentive plans, it may adopt the form of a limited partnership owing to the tax transparency inherent in partnership structures.

Overall, private fund managers are regulated by the CSRC and AMAC, the major institutional regulator and industrial self-regulator of the private funds sector. AMAC carries out daily supervisory functions under the authority of the CSRC.

• AMAC Registration: Private fund managers must be registered with AMAC before carrying out any fundraising activities in China. Private fund managers need to meet specific qualifications related to capital, experience, professional credentials, and integrity. Key personnel must pass relevant exams and pass the background checks. Legal opinions issued by a Chinese law firm to confirm the qualifications, as well as other supporting evidence need to be submitted to AMAC, accompanying other application materials for the AMAC registration.
• Reporting and Ongoing Compliance: Private fund managers must comply with CSRC and AMAC rules in their operation, including fundraising, investment management and their own internal governance. They are required to report to AMAC periodically, as well as upon the occurrence of any material change.
• Regulations Imposed by Special Investors: Some investors, particularly those regulated by other authorities (eg, insurance companies, government-backed guidance funds), may impose additional qualification and reporting requirements on the fund managers, the investment management teams and the fund managers’ operation.

In addition, some other regulatory authorities are involved in regulating private fund managers, including:

• Local Financial Bureau, Local CSRC Bureau or Other Local Authorities of Similar Function: Private fund managers are classified as “investment-related enterprises” and their establishment is usually subject to the local authorities’ pre-endorsement, depending on the relevant local regulatory practice.
• Local AMR, Local Tax Authorities and Other Local Authorities: AMR is the enterprise registration authority in China, and like other entities, a private fund manager needs to make registrations with the local AMR to obtain its business licence and record material changes. After its AMR formation registration, it needs to obtain tax registrations and several other ancillary registrations with other local authorities.

Private fund managers in the form of a limited liability company are subject to a 25% corporate income tax. Private fund managers in the form of a limited partnership are considered an income tax-transparent entity, meaning their income and gains are passed through to their partners. Corporate partners pay a 25% corporate income tax, while individual partners generally pay a progressive individual income tax rate ranging from 5% to 35%.

In addition to income tax, a 6% VAT is applied to management fees received by the private fund manager, regardless of whether it is a limited partnership or a limited liability company. Expenses related to fund management are deductible, and certain special preferential policies (often in the form of financial rewards) may apply under specific conditions.

China does not have a general exemption explicitly eliminating the concept of a permanent establishment (PE) for private funds with a manager in China. However, the Chinese tax authorities interpret the presence of a foreign fund manager and its activities within China carefully to determine tax exposure.

If a foreign fund manager maintains a fixed place of business, has employees or representatives in China, or conducts regular management activities within China, it may be considered to have a PE, subjecting it to Chinese corporate income tax on the income attributable to that PE.

While there is no blanket exemption for private funds with a manager in China, the risk of creating a taxable PE can be mitigated through careful structuring, limited activities, and reliance on relevant tax treaty provisions.

Carried interest is typically paid to the GP or an affiliated special limited partner (SLP) of a private fund in China, and in certain rare scenarios, it is paid as performance-based management fees to the fund manager. In China, carried interest does not have a specific, dedicated tax regime but is generally taxed as income. Whether carried interest is treated as investment gains or service fees has no impact on the receiving entity’s income tax rates. Carried interest is typically paid to the GP (that is not the fund manager) or SLP, as it is reasonable to argue that the carried interest is not fee income based on fund management activities and, thus, VAT may be waived on the carried interest. In contrast, carried interest paid to the fund manager as performance-based management fees will be treated as fee income, which will otherwise be subject to an additional 6% VAT.

Private fund managers in China are prohibited from outsourcing their core functions such as investment decision-making and key investment operations to other persons. They may outsource certain other functions such as administrative support, legal, compliance, accounting, and certain deal-sourcing activities. However, some functions can be outsourced but only to licensed private fund service providers. See further relevant details in 2.9 Rules Concerning Service Providers. Further, under CSRC and AMAC regulations, the private fund manager will remain responsible and liable to the investors and the regulators for the activities of the service providers and such other parties that the functions are outsourced to.

The private fund manager must be formed and domiciled within China and registered with AMAC before it can carry out fundraising, and manage and operate private funds in China. Under AMAC rules, it needs to have at least five full-time employees who have entered into employment agreements with the private fund manager and maintain social security records in the city where the fund manager is domiciled. Additionally, the private fund manager must maintain its place of business with an independent office in the city of domicile or in another city that is convenient for conducting business.

When shareholders, partners, or the actual controllers of a private fund manager propose to transfer their equity, partnership interest directly or indirectly in the private fund manager that will result in a change of actual control, then the shareholders, partners or actual controllers must promptly notify the fund manager. The fund manager, in turn, must duly fulfil its information disclosure obligations to investors and carry out the applicable internal decision-making procedures in accordance with the fund contract/LPA.

A change of actual control, as well as changes in the controlling shareholder or general partner of the private fund manager, is classified as a material change, which must be filed with AMAC within 30 business days of such change. Additionally, legal opinions issued by a qualified PRC law firm must be submitted to confirm that the private fund manager continues to fully meet the requirements for a private fund manager after the change.

China has introduced various regulations and guidelines on artificial intelligence (AI) that could impact its use for investment purposes or for operational/compliance purposes. However, if AI services are developed or used solely for internal daily operations without public exposure, the compliance requirements are significantly reduced. Currently, there are no specific requirements or limitations imposed by the relevant financial regulatory authorities. Please note that providing access to AI-based trading tools or API connections for investors to trade on their own without a proper investment licence could constitute illegal trading and trigger liabilities for a fund.

Regarding use of data, if the funds need to transfer the data abroad (eg, if a fund has an investment committee with members based outside of China), the sharing of data, especially if the funds invest in sensitive industries such as AI and semiconductors, may result in cross-border data transfer (CBDT) of important data, and the CBDT of important data requires governmental approval. Therefore, it is vital for funds to identify, desensitise and, to the extent possible, avoid collecting such data. In a nutshell, important data means data that concerns China’s national security interest but is not formally classified as state secrets. Although there are some national standards and sector-based rules, there is no comprehensive rule to determine for sure whether a data field in a particular scenario would fall into important data. Based on current rules and observed law enforcement practice, however, certain categories of data are very likely to be treated as such. These include R&D data relating to advanced semiconductor chips, precise geolocation data gathered by electric vehicles, and datasets containing personal information on more than ten million individuals.

Following the promulgation of several regulations in 2023 with respect to the registration of fund managers, the filing of private funds and regulations on private funds, it is anticipated that AMAC will release interpretations, Q&As and guidelines regarding the regulations to strengthen the systematic regulation of the private fund sector in China. In addition, AMAC is building upgraded IT systems for funds and fund managers’ registrations, filings and reporting, accompanied by enhanced data-sharing and parallel censorship with the CSRC.

Investors for private funds in the PRC need to satisfy the requirements of QIs – ie, an investor must:

• be capable of identifying and tolerating the risks inherent in the proposed investment;
• invest no less than RMB1 million in a single private fund; and
• satisfy one of the following conditions:
1. if an entity, have net assets of no less than RMB10 million; or
2. if a natural person, have financial assets of no less than RMB3 million or an average annual personal income of not less than RMB500,000 in the past three years.

Notwithstanding the above, there are several types of Deemed QIs:

• social security funds, enterprise annuities and other pension funds, charitable funds and other social non-profit funds;
• duly established investment schemes that have been filed with AMAC;
• fund managers and their practitioners who invest in the fund under their own management;
• Qualified Foreign Institutional Investors (QFIIs), or RMB Qualified Foreign Institutional Investor (RQFIIs); and
• such other investors (eg, asset management products issued by the institutions which are supervised by the financial regulatory departments under the State Council (eg, assembled funds trust plan)) as prescribed by the CSRC.

The commonly seen investors for private funds in the PRC include:

• institutional investors such as insurance companies, governmental guidance funds, state-owned enterprises and listed companies; and
• high net worth individuals.

Institutional investors such as insurance companies and governmental guidance funds are relatively welcome in the RMB fund market considering their funding capacity, yet sponsors may find it hard to attract institutional investors’ subscriptions for the funds as well. For instance, insurance companies impose high thresholds on sponsors, including without limitation, AUM of no less than RMB3 billion and registered capital of no less than RMB100 million. Governmental guidance funds typically require sponsors to make return investments into designated local areas and grant them veto rights to certain investment decisions.

Side letters (SLs) are permitted and commonly seen in the PRC private funds market. The beneficial treatments provided in the SL should be within the sponsors’ discretion under the fund contracts and should not have substantial adverse impact on the other investors that are not parties to the SL. AMAC does not require disclosure of SLs.

Certain institutional investors, such as insurance companies and governmental guidance funds, typically request SLs. Typically, the SL requests are pursuant to the regulations and policies that these institutional investors are subject to.

Private funds can only be marketed to qualified investors. Further, the investors’ capacity for risk identification and risk tolerance is assessed by investor suitability processes, and only those whose risk tolerance level matches the risk level of the fund can be accepted to subscribe for the fund interest (see 4.1 Types of Investors in Alternative Funds).

Only the fund managers duly registered with AMAC and fund placement agents (known as “fund sales institutions” under the regulatory rules) with approval from the CSRC and membership with AMAC may carry out marketing and fundraising activities for private funds in China.

Private funds can be marketed solely by private placement to the relevant QI as described above. The offering may not be made to the general public, meaning it can only be made to no more than 200 targeted or pre-identified offerees in the PRC. Private one-on-one meetings or meetings with small groups comply with the best practice. Marketing materials typically include PPMs, fund marketing slides, etc.

There is no safe harbour of reverse solicitation in China. There is no specific filing for marketing activities, yet the registered fund manager and licensed placement agents must fulfil their ongoing compliance and reporting obligations and maintain their AMAC registrations and licences so as to carry out the marketing activities. Further, for PE funds that have a definitive fundraising period, fund managers and placement agents must keep updating the marketing materials and avoid any misrepresentations, misleading information and omission of material facts. For PSIFs that are open-ended, marketing material updates may be required throughout the entire life of the fund.

There is no general solicitation rule with respect to private funds under the PRC law, and distribution to retail investors that are not QIs is not permitted in China. For admitting HNWIs, channel products such as trust schemes and private asset management schemes sponsored by securities companies or mutual fund companies’ subsidiaries, funds of funds, etc, are often used. However, the use of channel products may be limited by the regulatory rules against multi-layer nesting of private products.

Strictly speaking, there is no reverse solicitation rule under the PRC laws, although reverse solicitation is permitted for financial institutions with QDII (qualified domestic institutional investor) licences in practice. Thus, offshore fund sponsors typically talk to QDII licence holders or their QDII products for fundraising of their offshore funds.

Regarding marketing activities offshore for onshore funds, offshore feeder funds’ fundraising activities are not governed by PRC law given that the PRC does not have long-arm jurisdiction. The underlying products of offshore feeders may be RMB funds in China.

Placement agents and distributors are regulated entities under PRC law. Only institutions that (i) have obtained CSRC approval for fund sales licence; (ii) have registered with AMAC as private fund service institutions; and (iii) are AMAC members can act as placement agents or distributors for private funds in China. These institutions are called “Fund Sales Institutions”.

Under current regulations, a fund manager’s personnel are not prohibited from receiving compensation for the sales efforts. Costs of placement agents and investment relation (IR) personnel are typically assumed by fund managers, not the funds. The expenses with respect to the offering and sales of fund interests, such as external counsel costs, can be borne by the funds, and RMB fund investors typically request caps on such organisational costs.

The tax regime applicable to investors in the private funds market depends on the form of the fund (ie, corporation, partnership or contractual fund).

• Corporation: Private funds in the form of corporations are subject to corporate income tax, so that the principle of “distribution after taxation” applies. Once distributed to the investors, if the investor is an individual, the investor should pay additional individual income tax on the distributions (ie, giving rise to the dilemma of double taxation), and if the investor is a tax-resident enterprise for corporate income tax purposes, the investor may be waived from paying additional corporate income tax on the distributions (ie, avoiding double taxation).
• Partnership: If the RMB fund is organised as a partnership, the fund is transparent for the purpose of income tax. Taxable income/loss is calculated at the level of the partnership while income tax is paid by the partners, respectively, based on the specific conditions. If the partner is an individual, the partner should pay individual income tax on the taxable income, and if the partner is a legal person or other organisation, the partner should pay corporate income tax on the taxable income. The taxable income includes the income distributed by the partnership to all partners and the income (profit) retained by the partnership in the relevant year. Therefore, no income tax is payable at the fund level. For the avoidance of doubt, VAT and other surcharges, if applicable, are still payable at the fund level. The partners will determine their taxable income based on the distribution ratio specified in the partnership agreement; and where the partnership agreement does not specify a distribution ratio, the taxable income for each investor should be calculated equally. The fund manager or other withholding agents may withhold and remit the taxes payable by the partners on such income pursuant to the relevant PRC tax collection regulations.
• Contractual Fund: Contractual funds are generally not regarded as taxable entities. As for the investors, if the investor is an individual, the investor should pay individual income tax, and if the investor is a legal person or other organisation, the investor should pay corporate income tax, on the distributions derived from the fund and/or the gains derived upon transferring the funds.

Additionally, private funds engaging in venture capital investments may enjoy preferential tax treatments, such that if the fund invests in eligible seed-stage or start-up technology companies through equity investment, 70% of the investment amount can be deducted from taxable income in the year when the equity holding period reaches two years. Any unused deduction may be carried forward to subsequent tax years.

Offshore investors of private funds are entitled to treaty benefits (if applicable), provided that the PRC has concluded such treaty with the country where the offshore investor is a tax resident to avoid double taxation.

Furthermore, if the investor is a partnership established pursuant to the laws of a foreign country (region) with effective management located outside China, but which has an establishment or a place in China, or which has no such establishment or place but has income sourced from inside China, the investor is a non-resident enterprise obligated to pay corporate income tax in China.

Unless otherwise stipulated in the tax treaty, the partnership may enjoy tax treaty benefits for taxable income in China only if it is a tax resident of the other contracting party. Where the tax treaty stipulates that when the income derived by a partnership is deemed as income derived by its partners pursuant to the domestic laws of the other contracting party, then the resident partners from the other contracting party may enjoy tax treaty benefits for their distribution derived by the partnership.

In addition, for QFLP funds (see 1.1 General Overview of Jurisdiction), to the extent that neither the QFLP GP nor the QFLP LP has any place or establishment (or permanent establishment) in the PRC, or the income derived from the QFLP fund is not effectively connected with its place or establishment in China, such income distributed by the QFLP fund to the QFLP GP and/or the QFLP LP may qualify for the preferential tax treatment.

The Measures for the Administration of Due Diligence on Tax Information of Non-Resident Financial Accounts released in 2017 (the “Measures”) require the PRC financial institutions to obtain the tax residence statuses of account holders or relevant controlling persons, identify non-resident financial accounts, and collect and report relevant account information. The Measures transferred the Common Reporting Standard (CRS) by the Organisation for Economic Co-operation and Development (OECD) into domestic applicable rules. In September 2018, the State Taxation Administration (STA) completed the first exchange of tax information on financial accounts with tax authorities from other countries and regions.

FATCA enacted by the United States requires foreign financial institutions to report information on accounts held by US tax residents (including US citizens and green card holders) to the Internal Revenue Service (IRS). FATCA adopts a bilateral information exchange mechanism, under which the US government signs bilateral agreements with governments from other countries and regions.

Pursuant to the official interpretation on the Measures from the STA, CRS is generally similar to the contents of FATCA with certain differences in details, and given that the PRC government is actively negotiating with the US government regarding the FATCA intergovernmental agreement, financial institutions in the PRC may consider co-ordinating CRS and FATCA at the operational level and integrating the declaration documents under the two standards based on their business needs.

The new Anti-Money Laundering Law (effective on 1 January 2025, the “New AML Law”) marks the first major revision since 2007 and forms the foundation of China’s current AML/KYC framework.

Under the New AML Law, designated non-financial institutions are, alongside financial institutions, brought within the category of “regulated entities”. These entities are required to put in place robust internal AML systems proportionate to their business scale and risk profile, and adopt AML measures, including, among others, allocating AML personnel, conducting regular risk assessments, establishing monitoring and reporting IT systems, etc. The AML compliance performance of regulated entities may affect their future business operation and further their market competitiveness.

In relation to KYC, obligations now extend to a broader range of circumstances, including the establishment of business relationships, the handling of suspicious transactions, and any changes in a customer’s risk profile. They also include the identification of beneficial owners and the application of enhanced due diligence to high-risk clients. Also, the Measures for the Administration of Beneficial Owner Information released in 2024 by the People’s Bank of China and the State Administration for Market Regulation (SAMR) require companies, partnerships, and foreign companies’ branches to file their beneficial ownership information via the SAMR system, which is regarded as a breakthrough in the current PRC KYC regime.

Specifically, whilst the rule of beneficial owner identification applies, private fund managers are currently not “regulated entities” under the New AML Law. That said, AMAC generally requires them to conduct AML checks on potential investors with no detailed rules. Thus, private fund managers may consider establishing their AML frameworks by reference to the AML/KYC requirements for regulated entities, insofar as this is appropriate.

For investors in China, managers and funds must primarily comply with the regulatory framework formed by three foundational laws – ie, the Cybersecurity Law, the Data Security Law and the Personal Information Protection Law, while also adhering to specific regulatory requirements for the financial services sector.

Regarding privacy, key obligations include obtaining explicit consent for data processing, especially for sensitive financial information, and adhering to the principles of legality, necessity, and data minimisation when processing.

Regarding cybersecurity, the Regulations on Network Data Security Management (effective on 1 January 2025) refine multiple aspects of the Cybersecurity Law, strengthening the alignment of cybersecurity-related laws. In particular, they establish strict requirements for enterprises regarding network operation security, including Multi-Level Protection Scheme (MLPS) measures, mandatory reporting of security vulnerabilities, and protocols for responding to security incidents.       

The landscape for private fund investors in the PRC is poised for incremental evolution, driven by a combination of regulatory reforms, market developments and policy initiatives aimed at increasing market participation, enhancing investor protections, and ensuring the stability and sustainability of the financial system.

One of the most notable changes is the increasing participation of government-backed funding. Over recent years, the PRC government has actively promoted the private fund sector as part of its broader financial reform and economic modernisation objectives. Government-backed investment entities, such as state-owned enterprises, policy-oriented local government investment funds (usually funds of funds) and state-owned/participated insurance companies, are expected to play a prominent role in the private funds market. This trend is motivated by the desire to channel long-term capital into strategic sectors, stabilise the market during periods of volatility, and support economic restructuring. However, this increased participation of government-backed funding can also impact the market dynamics, potentially leading to more policy-oriented investment strategies and stricter scrutiny as to the use of funds.

Simultaneously, there are ongoing discussions and proposals to tighten the criteria for QIs. Currently, QIs are assessed relating to their asset size, investment experience, and risk appetite, intended to ensure they possess sufficient financial literacy and capacity to bear investment risks (see 4.1 Types of Investors in Alternative Funds). Future regulatory developments may impose higher thresholds – such as higher minimum asset and income levels – or introduce more rigorous verification processes, including but not limited to enhanced standards on track records and the relevant experience of investment personnel of the (institutional) investor, to prevent potential systemic risks and to elevate the professionalism of market participants.

Further, regulatory focus on investor protection is expected to intensify. Legal developments in recent years, including the enactment of the Regulation on the Supervision and Administration of Private Investment Funds and the Measures on Private Investment Fund Registration and Filing, indicate a trend towards more comprehensive investor protections. Upcoming regulations are anticipated to build on this framework, addressing gaps in the existing regime by expanding disclosure and transparency obligations, setting clearer standards for fund due diligence and risk management and imposing stricter compliance requirements on both investors and fund managers.

These measures are expected to improve market integrity, build investor confidence, and prevent misconduct that could undermine the stability of the private funds market in China.