13th September 2016
Kiran Patel, LehmanBrown Limited
This article by Kiran Patel of MSI's Chinese accounting member LehmanBrown presents the key methods for repatriation of profits from China and provides information on the tax system for international cross-border trade.
When investing time and effort into the People’s Republic of China (“PRC”) it is important to understand the most efficient methods for a business to repatriate company profits.
Profit repatriation best practice strategies
All methods of repatriation are subject to strict controls by the State Administration of Foreign Exchange (“SAFE”). Unless the reserve fund’s capital is at least equal to 50% of the reserve capital, Wholly Foreign Owned Enterprises (“WFOEs”) and Foreign Invested Commercial Enterprises (“FICEs”) must allocate 10% of their post-tax income to their reserve fund.
Dividends can only be repatriated once per year after all company annual reports have been published, or in the interim following publishing of the financial statements. In order to repatriate dividends from China, you are required to make up any losses carried forward from previous years with after-tax profit and allocate a certain rate of after-tax profit to statutory reserve funds.
China charges a 5-10% dividends tax on the overseas repatriation of profits, in addition to 25% Corporate Income Tax (“CIT”). However, many of China’s bilateral Double Taxation Avoidance Agreements (“DTA’s”) provide for a clause that reduces the dividends tax rate by 50%, entailing considerable savings for enterprises. In order to secure these savings, it is essential that investors plan far in advance, as applying for DTA benefits is just one step in the larger procedure of declaring and repatriating dividends.
Read more about Profit repatriation strategies for foreign invested enterprises in China
LehmanBrown is a China-focused accounting, taxation and business advisory firm, operating dedicated offices in Beijing, Shanghai and Shenzhen with an extensive affiliate network providing service throughout China.
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