VIE Structures Revisited: Where We Are Today

The variable-interest-entity ("VIE") structure has been pronounced dead by foreign press cycles every two years since at least 2011. It is not dead. It is, however, materially different in 2026 from what it was even three years ago. Three regulatory shifts matter; one practical question follows.

1. The 2023 CSRC filing regime applies

Effective 31 March 2023, the State Council's Provisions on the Administration of Overseas Securities Offerings and Listings by Domestic Companies and CSRC's implementing rules require filing with the CSRC for any overseas offering by an issuer with a PRC operating business — including those that hold their PRC operations through a VIE.

In practice this means:

• New listings via VIE structures must complete CSRC filing before the offering can proceed.
• The filing review will examine, among other things, the legality of the VIE arrangement under PRC law and the regulatory landscape of the operating business.
• CSRC has been issuing follow-up questions on industries on the foreign-investment negative list, on data and cybersecurity, and on the consistency of disclosure between the home-country filing and the China-side regulatory record.

The filing is not a substantive approval, but the issuance of acceptance letters is not guaranteed and has been delayed or denied in cases where the underlying business sat in restricted categories.

2. The negative list still drives architecture choice

VIE structures exist because certain industries are restricted or prohibited for foreign investment under the Special Administrative Measures (the "negative list"). The list is updated periodically and has been shortened in successive iterations, but the categories that historically motivated VIE usage — value-added telecommunications, internet content services, online publishing, online cultural services, and certain education and healthcare segments — remain in restricted form.

If the target business sits on the negative list, foreign direct equity is not available and a VIE (or co-investment under a permitted minority cap) remains the only equity-style architecture. If the business has migrated out of restricted categories (some have), a direct equity structure may now be available and is generally preferable.

3. Tax and substance pressure has compounded

Independently of the regulatory layer, Cayman / BVI holding structures used in VIE arrangements face the same pressure as other offshore structures: the Cayman Economic Substance Act regime, the OECD Pillar Two minimum tax (in force or rolling out across jurisdictions in 2024–2026), and increased information-exchange protocols. None of these kill the VIE structure, but they make the offshore layers more expensive to maintain than they were five years ago.

The practical question

For a new transaction in 2026, the architecture decision is no longer "VIE or direct" in the abstract; it is a four-way comparison:

Architecture	When viable	Key trade-offs
Direct foreign equity	Business not on negative list	Cleanest; simpler tax; smaller offshore overhead
VIE	Business on negative list and no alternative	CSRC filing required; ongoing contractual-control fragility
Permitted minority + JV	Business has a foreign-investment cap	Cap may dilute economics; requires local partner
Onshore listing	Issuer can qualify for A-share or STAR Board	Different investor base; CSRC review framework; RMB liquidity

Three years ago, most of these were notional alternatives — onshore listing was difficult for a "new economy" issuer, and direct foreign equity was unavailable for a long list of sectors. The set of cases where one of the non-VIE options is genuinely competitive has expanded.

What still needs to be true for a new VIE to work

When a VIE remains the right answer, counsel should confirm the following before incurring transaction costs:

• The operating business sits in a clearly identifiable negative-list category, not a gray zone.
• The contractual control arrangements have been benchmarked against current CSRC filing precedents and any recent CSRC questions.
• Data-handling and cybersecurity compliance is at a defensible baseline before filing.
• The offshore substance and tax position has been re-priced under post-2024 conditions.
• Counsel agree on a contingency plan if the CSRC filing is delayed past the desired offering window.

Closing

The VIE is not the default architecture for a 2026 cross-border deal. It is the architecture for a specific subset of businesses on the negative list, with a filing regime that adds time and disclosure burden, and a tax / substance position that has gotten more expensive. The right question is not "VIE yes or no?" but "what does each of the four architectures look like for this specific business?"

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This article is general commentary as of the date above. It is not legal advice and does not address the specifics of any particular transaction. For matters governed by PRC law, please engage qualified PRC counsel.