One of the most frequently asked questions from our clients is:” Can I send money I made from my company in China home or transfer to another country? “Of course, it is allowed. Article 21 of the Foreign Investment Law of the People’s Republic of China clearly stipulates: ” A foreign investor may, according to the law, freely transfer in or out its contributions, profits, capital gains, royalties of intellectual property rights, lawfully acquired compensation or indemnity and so on within the territory of China in Renminbi or a foreign currency”( for more information, please visit our previous post: Implementation Regulation on Foreign Investment Law of the PRC
Now let’s see the relevant rules regarding how to expatriate profits. According to the identity of the investors–foreign nationals or foreign companies, the rules could be different.
If the shareholders are foreign nationals
According to the current policy of the State Administration of Taxation of PRC regarding to individual income tax (” IIT”): “Foreign nationals are temporarily exempted from individual income tax for the dividends they obtained from the company they directly invest in. ” It means the foreign nationals can expatriate their dividend to their home country without paying IIT.
If the shareholders are foreign companies
Enterprise income tax must be paid as follows:
I. Submit the application
Article 37 of the Enterprise Income Tax Law of PRC stipulates that the income tax payable on dividends obtained by overseas companies shall be withheld from the source so that the payer (i.e. the company in which it invests directly) shall be the withholding agent. The tax shall be withheld from the amount payable or due by the withholding agent each time it is paid or due.
If the Chinese company intends to remit profits to its headquarter, it must submit the following documents to the bank:
1. Written application.
2. Resolutions on the distribution of profits by the shareholders’ meetings or boards of directors (or the resolution on the distribution of profits by partners) in connection with the repatriation of this profit.
3. Audited financial statements.
4. Tax certificates issued by the competent tax department (e.g., hard copy or electronic copy of external payment Tax filing form).
II. Audit by bank
Upon receipt of the above-mentioned materials, the bank will conduct an audit in accordance with related provisions of the Company Law of PRC. The main audit requirement is that the company shall make up for the previous year’s losses in line with the Company Law and laws and regulations related to foreign investment.
The bank will check for any losses in past years and if make-up of the losses is reflected in their financial statements. The related provisions are as follows:
1. When the company distributes its profits for the current year, 10 percent of the profits shall be withdrawn and included in the company’s statutory provident fund. If the cumulative amount of the company’s statutory provident fund is more than 50 percent of the registered capital of the company, it may no longer be withdrawn.
2. If the statutory provident fund of a company is not sufficient to make up for the losses of the previous year, it shall make up the losses with the profits of the current year before withdrawing the statutory provident fund, and only the profits after the company makes up the losses and withdraw the provident fund shall be distributed.
3. If the profits are distributed to the shareholders before the company makes up its losses and withdraws the statutory provident fund, the shareholders must return the profits distributed in violation of the laws, to the company.
4. The profit realized by the company in the current year, together with the undistributed profit at the beginning of the year (or minus the undistributed deficit at the beginning of the year), is the profit available for distribution. The shareholders may distribute dividends in proportion to their capital contribution, except where the Articles of Association provides otherwise.
III. Tax rate
Article 4 of the Enterprise Income Tax Law of the PRC stipulates that: the income tax rate for direct investment by overseas companies is 20%.
However, the Regulations on the Implementation of the Enterprise Income Tax Law of the PRC stipulate that overseas companies may be subject to enterprise income tax at a reduced rate of 10% on the above-mentioned income. It means, the dividends paid by domestic resident enterprises (including domestic and overseas listed enterprises and non-listed enterprises) to their shareholders – overseas companies shall be subject to an enterprise income tax rate of 10%. In addition, tax on dividends obtained in accordance with the tax treaty (arrangement) may be charged in accordance with the provisions of the tax treaty.
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