Remittance assistance on non-trade items
Many companies (especially foreign invested enterprises) need to remit various types of funds (e.g. royalty, service fee, interest, rental, dividend, cost reimbursement etc.) to overseas related or non-related parties. During the recent years, Chinese tax authorities have published a series of regulations to strengthen the controls on the remittance of the above non-trade items from the perspectives of application/registration procedures to tax treatment. Relevant companies should ensure their non-trade items remittance are handled in the fully compliant and most tax efficient ways, based on their specific situations and the relevant regulations. For example, the following issues should be noted:
- The relevant charges are based on what transactions or arrangements? For example, an overseas affiliate provides technical support relating to a specific manufacturing know-how to its related parties in China. Another example is that some Chinese companies’ certain back-office functions (e.g. finance, HR, IT etc.) are centrally arranged by an overseas affiliate.
- How is the recharge amount determined? The Chinese company that will make the remittance may not know what such pricing mechanism is, because the charge amount is determined by the overseas parent or affiliate. However, the Chinese must understand such pricing policy or method, because the Chinese tax authorities are putting an increasingly closer eye on such issue may very likely raise the question to the company.
- Are there supporting documents that can prove to the Chinese tax authorities that the above charge amounts are reasonable, i.e. on the arm’s length basis. If such documents do not exist, should they be prepared as soon as possible? In some cases, the group headquarter (e.g. the parent company in the US, Europe or Japan) has prepared the group pricing policies for related party transactions. However, such group policies should be tailor-made according to the Chinese transfer pricing requirements and tax regulations.
- Can the relevant contract terms meet the requirements of Chinese tax and foreign exchange authorities, and will they attract questions by the tax authorities and lead to an undesired tax treatment to the company (or the overseas related party)?
- Have the relevant contracts, invoices and the enterprises’ information been properly registered with the relevant authorities according to the Chinese tax and foreign exchange regulations?
- Regarding the China taxes that need to be withheld for the non-trade items, what tax treatment will be adopted by the Chinese tax authorities? Is such tax treatment reasonable? Is it possible to obtain a more favourable tax treatment to the company (or the overseas affiliate)? How to communicate and negotiate with the Chinese tax authorities for such purpose? In this regard, the negotiation with the tax authorities for the first remittance is crucial. Normally, once the Chinese tax authorities agree on the tax treatment for the first remittance, the same tax treatment can be adopted for on-going remittance.
- Is it possible to centralize the remittance of non-trade items to the China Holding Company or China headquarter of a foreign enterprise group? Considering the BT-to-VAT reform in Shanghai (effective from January 1, 2012), does it make sense to adjust the original arrangements to maximize the tax efficiency?
- With regard to the CIT deduction by a Chinese company on the non-trade items that it paid, does its in-charge tax bureau have additional requirements?
- For each remittance, what are the documents required and what tax filing and registration procedures are involved?
We can provide relevant professional services with regard to the above considerations for the non-trade items remittance. We are very experienced and serve many clients in the non-trade items remittance and related areas, like transfer pricing, annual CIT filing, etc.
Foreign debt-related services
We can provide the following services to our clients:
- Advisory on cross-border investment and funding arrangements
- Review of foreign debt contracts
- Assistance on opening foreign debt bank accounts, conducting foreign debt registration etc.
- Handing the tax and foreign exchange procedures for the remittance of loan interest and principal
Advisory and implementation assistance on capital injection and fund repatriation
In the entire circle of a company’s investment, proper planning and arrangement of the injection, repatriation, concentration and reinvestment of funds from the cash flow perspective is definitely a very important area. In this regard, we can provide the relevant advisory and implementation assistance services to our clients, i.e.:
- How much cash is needed to establish or acquire a company? How should such cash been invested and under what time table? Will that affect the applicable accounting and tax treatment?
- During the operation period of the invested company, will additional investment be required? What forms can be adopted for such additional investment, like cash injection, in-kind contribution of machinery or other assets, purchasing or leasing equipment, etc.
- Does the investor hope to receive cash repatriation from the investment project as quickly as possible? What cash repatriation channels can be considered and what are the relevant tax and foreign exchange considerations?
- Would the investor like to have a platform or mechanism in China to concentrate and redeploy cash, in order to maximize the cash utilization and tax efficiency?
Contact Us
Floor 13, Asia Mansion, 650
Hankou Road, Huangpu District,
Shanghai
