Profit Repatriation from China to US: Is Your Cash Stuck?

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 authorities is an issue, companies are frustrated with as they are not able to get cash out,” said Dr. Shan Nair, CEO and Co-founder of Nair & Co., a global services firm that helps companies expand internationally.

“There is a lack of 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. While 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- the list is long and the key is to formulate a profit repatriation strategy,” added Alvin Chan, Client Services Director at Nair & Co., and an expert in China expansion.

Chan adds that depending upon the city your entity is located in and who you bank with, the process may vary, but generally follows the below stages. 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: The document list includes:

• Tax payment statement
• Tax returns
• Audited reports
• Credit reports
• Other information as requested

Once checked and approved, the local bank will need 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.

For complete details on China remittance of profits via Dividends please email info@nair-co.com

Disclaimer :

Published: October 03, 2011. The information provided on this page is intended merely to highlight issues for general information purposes only. It is not comprehensive nor does it provide legal advice. Any information is subject to change without notice. No liability whatsoever is accepted by Nair & Co.