Understanding the process of Profit Repatriation from China to US
An increasing number of companies with profit-generating trading entities in China are finding it difficult to repatriate their accumulated reserves to the US via dividends. The release of foreign exchange by China can become an obstacle when it does not allow companies to get their cash out of the country. It is therefore necessary to have an adequate understanding of the foreign exchange regulations in converting Chinese Yuan into a tradable currency like the USD. So when the US parent wants to repatriate some of their accumulated Chinese Yuan reserves, they think all you need is to declare a dividend and apply for a wire transfer to the US parent. Although China allows Foreign Invested Enterprises (FIEs) and enterprises to remit their profits/dividends out of the country, there are a range of requirements companies must first meet, including regulatory and corporate governance compliance in China.
Although prior approval from the State Administration of Foreign Exchange (SAFE) is not necessary, the company must present documents to the bank for verification before the bank would process the remittance, and report details of the remittance to the local foreign exchange administration.
Documents are submitted to bank for verification process
There is a list of documents the need to be submitted. These include
- Tax payment statement
- Tax returns
- Audited reports
- Credit reports
- Other information as requested
Once checked and approved, it is necessary for the local bank to update the foreign exchange registration certificate and report to the local foreign exchange administration department.
SAFE, however, in accordance with the Notice on Issues Concerning the Remittance of Profits, Dividends and Bonuses by Designated Banks, is authorized to carry out random check on remittances amounting to an equivalent value of US$100,000 or more, or remittances deemed necessary, to determine their authenticity.
In an international business expansion, it is always good to take the help of a business consultant as it is best to formulate a profit repatriation strategy to ensure that your cash does not get stuck. Different cities have different regulations and it is difficult to keep abreast of the same in an international expansion. With the help of a professional, you can get all the expert help in other areas of your expansion like tax equalization expat, transfer pricing audit, intercompany transfer pricing etc. Understanding the processes and having proper structures in place from the beginning can greatly enhance the ability of an enterprise to maximize and repatriate profits.
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