Company: FSHPU
Filing Date: 2025-03-04
Form Type: 10-K
Source: 0001829126-25-001450
Chunk: 264

Company: Flag Ship Acquisition Corp
Filing Date: 2025-03-04
Form: 10-K
Item: Item 1A
Chunk 264
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 not be able to pay dividends in foreign currencies to its shareholders.

Dividends payable to our foreign investors and gains on the sale of our ordinary shares by our foreign investors may be subject to PRC tax.

We may consummate a business
combination with a target business based in and primarily operating in China through subsidiaries in China, such as the Proposed GRT Business
Combination. After such business combination, the combined company may rely on dividends and other distributions from the PRC subsidiaries
of the combined company to provide it with cash flow and to meet its other obligations. Current regulations in China would permit the
combined company’s PRC subsidiaries to pay dividends only out of their accumulated distributable profits, if any, determined in
accordance with Chinese accounting standards and regulations. In addition, the combined company’s PRC subsidiaries in China will
be required to set aside at least 10% of their after-tax profits each year to fund their respective statutory reserves (up to an aggregate
amount equal to half of their respective registered capital). Such cash reserve may not be distributed as cash dividends.

In addition, if the combined company’s PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make payments to the combined company or its PRC subsidiaries, as applicable.

Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective in January 2008, and a Circular 7 in replacement of some of the existing rules in Circular 698, which became effective in February 2015.

Under Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC corporate income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident