Remitting Profits as Dividends

The most apparent method is to pay dividends directly to its HQ. However, this is subject to some prerequisites.

1. A foreign invested enterprise (FIE) can only repatriate profit after its registered capital has been injected within the time-limits according with the company’s “Article of Association”.


2. An FIE generally can only repatriate profit once a year after the annual compliance process (annual audit and tax settlement).
   


3. No profits can be distributed before the losses accumulated in the previous years have been made up. That means, the FIE can only distribute dividends out of its accumulated profits.


4. Not all profits can be repatriated after tax clearance. WFOE has to place 10% of its yearly after-tax profits into a mandatory surplus reserve fund until it reaches 50% of the registered capital.


5. the dividend is subject to additional 10% withholding CIT when repatriating to foreign investors. the Double tax avoidance agreement is available, a preferential withholding CIT rate of five percent 5% or even lower may apply.
   

As an alternative, many multinational corporations use intercompany payments, such as service fees or royalties, to remit cash from China. Paying Intercompany Fees to Investors

As an alternative, many multinational corporations use intercompany payments(None-trade payment), such as service fees to remit cash from China.

When confronted with the constraints of remitting dividends, many companies attempt to repatriate profit from China via None-trade payments, such as charging marketing sourcing/ IT information.

In comparison with remitting dividends directly, profit repatriation through intercompany payments has some advantages for investors. There are less prerequisites, intercompany payments are often easy way to repatriate profits.

The intercompany transactions are subject to turnover taxes, surcharges, and CIT. Next time we will take the WFOE as an example to demonstrate those two method of repatriating profits.

Please contact us for more information.
source: cpa-cmap