China: Profit Repatriation for Foreign Companies

For foreign companies with subsidiaries in China, profit repatriation from their subsidiaries has always been an important and challenging issue, says an article from China Briefing. China maintains a strict system of foreign exchange controls, meaning funds flowing into and out of China are tightly regulated.

It is important for foreign investors to incorporate a profit repatriation strategy into the set-up planning of a subsidiary in China to ensure its ability to access the profits earned and to achieve significant cost savings. There are several ways to repatriate profit from China, the most obvious being for a company’s China-based entity to pay dividends directly to its foreign parent company.

However, this is subject to certain prerequisites – only profits that have undergone annual audit can be repatriated using this channel, ensuring that the gross profit will be subject to 25 percent CIT. Dividends are subject to a further 10 percent withholding CIT when distributed to foreign investors.

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