Outbound remittance from China often proves challenging for overseas shareholders. While several options are available, related procedures need to be adequately anticipated.
1. Dividends
The most common way to repatriate profits from China is the distribution of dividends by the China Foreign Invested Enterprise (FIE). Prerequisites include injection of registered capital of the FIE and achievement of annual audit and tax compliance. Besides, former losses (if any) shall offset accumulated distributable profits, part of which shall be contributed to a mandatory surplus reserve.
Taxes and control of changes include:
- Withholding tax at the standard rate of 10%, often reduced under Double Taxation Agreements (DTAs);
- Approval of the State Administration Foreign Exchange (SAFE).
Timeline & frequency: minimum 6 to 8 weeks, once a year.
2. Management Fees
Intercompany services are another way to repatriate profits from China. Overseas headquarter offices (HQ) typically charge their FIE for supporting services including HR, IT, financing, or use of intangible assets (such as trademark, patent, or know-how). Despite many advantages, this option comes with higher risks of tax investigations, especially if the services fees are not at arm’s length, which can challenge their tax deductibility at FIE level. Adverse tax treatment might also occur if a Permanent Establishment of the overseas HQ is characterized in China.
Taxes and control of changes include:
- Withholding tax at the standard rate of 10% (reduced under DTAs) or up to 25% if attributable to a permanent establishment in China;
- VAT at the standard rate of 6%;
- Approval of the SAFE.
Timeline & frequency: around 6 weeks, several times a year if reasonable.
3. Loan’s Interest
Intercompany loans are a third option to repatriate profits from China. The parties shall have an equity relationship and both must be established for at least one year. There is a limited loan ratio and the full amount shall be repaid within five years. To be effective, the contract shall be registered with the SAFE and the funds shall be deposited on a dedicated foreign loan bank account.
Taxes and control of changes include:
- Withholding tax at the standard rate of 10% (reduced under DTA);
- VAT at the standard rate of 6%;
- Approval of the SAFE.
Timeline & frequency: around 5 weeks, once a year.
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