In order for a company to distribute and repatriate profits back to their investors it must:
A Chinese bank will only process dividend payments with a completed audit report and tax receipt confirming the amount of profit distribution and tax payment.
The most common profit repatriation strategy is a dividend payment. It is relatively easy to repatriate profit by way of dividends, but the tax burden could be high from the China side (corporate income tax and withholding tax) and the U.S. side as well.
A Chinese bank will only process dividend payments with a completed audit report and tax receipt confirming the amount of profit distribution and tax payment.
The following documents are required:
Other documents may be required by the banks subject to their own internal compliance/KYC/risk management requirement.
With a service/royalty fee, the overall tax burden can be lower than with dividends because the tax is a value added and withholding tax.
This method only allows genuine arm’s length transactions directly related to the company’s business. Otherwise, it may be challenged by the tax bureau. There are restrictions on the amount which can be repatriated through a service/royalty fee.
This method requires the following documents:
Other documents may be required by the banks subject to their own internal compliance/KYC/risk management requirement.
An intercompany loan between the overseas affiliate or parent company and the subsidiary in China must be repaid. Thus, it’s not a solution for permanent repatriation.
There are two types of intercompany loans:
These types of loans must be handled via a bank by way of entrusted lending. A subsidiary in China cannot remit money overseas directly. The transaction must be handled through a bank which will verify and approve the loan. This type of lending by the Chinese entity to its overseas affiliate is called entrusted lending. It is possible that the bank may reject the company’s application. It is also possible that the bank may reject the application at times when the government wants to restrict the capital outflow.
The following restrictions apply:
Overseas borrowing. When the company in China borrows from its overseas affiliate company and/or parent, it must open a specific capital account for the cross-border loan whether it is an intercompany loan or overseas borrowing. All the funds related to this loan (including interest) must be settled through this account.
The ratio and parameter are set up by the regulatory and are subject to dynamic adjustment. Currently, the ratio for the company is 2. The parameter is 1.
Thus, the maximum amount the company can borrow from overseas is twice the company’s capital or net assets. In addition:
Capital/Net Assets
x Cross-Border Financing Leverage Ratio
x Macro Prudential Adjustment Parameter
= Maximum Borrowing Amount
Vistra employs more than 3,500 professionals across 75 locations in 48 jurisdictions. In China, we help foreign companies with market entry including setting up Offshore Company Structures, Incorporation in China, Virtual CFO and HR Solutions.
Grace Zhu is responsible for PNC’s business in mainland China and Hong Kong.
She has more than 25 years’ experience in the banking industry in Shanghai, including check clearing, payments, cash management, trade finance and loans business. Prior to joining PNC Bank, Zhu served other major U.S. and international banks.
Zhu holds a bachelor’s degree in finance and taxation from Shanghai University of Finance & Economics and a master’s degree in business administration from the joint program of Shanghai University of Finance & Economics and Webster University.
Karen Wang has been helping overseas companies enter China for more than 10 years. She gained her experience from multinational organizations and international consultancy firms, where she advised overseas clients in a variety of industries, including manufacturing, consumer goods, trading and consulting, including both multinationals and startups.
Wang co-chairs the American Chamber of Commerce Future Leader Committee and is a frequent speaker on China-related topics.
Established in 2008, PNC's Shanghai Representative Office (SRO) is available as a resource to PNC clients who are doing business with China or in China. The SRO can provide assistance and guidance on:
Should you have any questions, please contact theInternational Advisory Team; Grace Zhu, Chief Representative or Chris Chen, Representative, in the PNC Shanghai Representative Office.
Tax implications and tax planning are important considerations for determining the optimal profit repatriation strategy.
This document and the Information it contains is intended for informational purposes only, and should not be construed as legal, accounting, tax, trading or other professional advice. You should consult with your own independent advisors before taking any action based on the Information. Under no circumstances should the Information be considered trading advice or a recommendation or solicitation to buy or sell any products or services or a commitment to enter into any transaction. The Information is gathered from sources PNC Bank believes to be reliable and accurate at the time of publication and are subject to change without notice. PNC Bank makes no representations or warranties regarding the Information’s accuracy, timeliness, or completeness. All performance, returns, prices or rates are for illustrative purposes only. Markets do and will change. Actual results will vary, and may be adversely affected by exchange rates, interest rates, or other factors.
PNC is a registered service mark of The PNC Financial Services Group, Inc. (“PNC”).
PNC Bank’s Shanghai Representative Office was approved by the China Banking Regulatory Commission on April 16, 2008. PNC’s Shanghai office is prohibited from engaging in any form of operational business activities in compliance with the People’s Republic of China on Administration of Foreign-funded Banks released by the State Council. Accordingly, PNC’s Shanghai Representative Office does not accept deposits, underwrite loans or issue credit of any kind, or sell wealth management products in China. Any activities of these types in China using the PNC name or trademarks are not authorized by PNC.
Bank deposit and treasury management products and services are provided by PNC Bank, National Association (“PNC Bank”), a wholly-owned subsidiary of PNC and Member FDIC.
Read a summary of privacy rights for California residents which outlines the types of information we collect, and how and why we use that information.