Are you a business professional looking to repatriate money from China? Whether you came to China as a student and, through some glitch, ended up staying here for the past 5 years, or you relocated here for a job and/or started a business in China, at some point the thought of repatriating the money you’ve earned in China inevitably comes up.
China, with its booming economy and thriving business opportunities, has attracted countless entrepreneurs and investors from around the world. However, when it comes to repatriating your hard-earned money, it’s important to understand the ins and outs of the process. There’s definitely a lot of talk on WeChat about this topic and a lot of sketchy under-the-table “services” for sending money out of China which you’ll want to avoid. In this article, we will go over the legal ways individuals and businesses can repatriate money from China back home, what the requirements are, and what fees you can expect.
What is Money Repatriation in China?
Money repatriation refers to the process of transferring funds or profits earned by foreign businesses or investors back to their home country from China. This topic holds great significance for businesses operating in China as it affects their financial management and international cash flows.
When conducting business in China, foreign companies may accumulate funds or profits in local currency (Renminbi) that they may eventually want to repatriate. The ability to repatriate funds seamlessly is crucial for maintaining liquidity, optimizing financial performance, and complying with legal and regulatory requirements.
How Foreigners can Repatriate Personal Funds
If you’re a foreigner living or doing business in China, you may have accumulated personal funds and are now considering repatriating them to your home country. Understanding the process and navigating the necessary steps is crucial to ensure a smooth and efficient transfer of your funds. So you are working for a company in China and have a valid work permit + visa and have been paying your individual income taxes(IIT), then I have good news for you because the process of repatriating your hard-earned income is an easy one.
But, before initiating the repatriation process, it’s important to familiarize yourself with the relevant regulations and policies governing fund transfers. China has specific foreign exchange regulations that govern cross-border transactions, and it’s essential to comply with these regulations to avoid any legal or financial complications.
Repatriation of Income Through a Chinese Bank
If you are repatriating a large sum of money earned working in China you can go to your bank with the following documents:
- Your passport
- Your work permit
- Your employment contract
- Your pay-slips
- Your Tax Identification Number (provided by your company)
Your bank will then apply to transfer your funds through the State Administration of Foreign Exchange (SAFE). Once your application is accepted, your funds will be transferred to your foreign account by your bank or by a third-party provider of your choice, and before you ask, yes there are always extra “processing” fees from every party involved, but what are these fees and how do you minimize them?
Wire Transfer Fees
The fees involved depend on a few variables. What Chinese bank are you using? Which country are you sending the funds to? What is your receiving bank? Is the money being transferred through a third party or multiple third parties? The fewer variables involved the better.
Charges by Chinese banks involve a transaction fee and a fixed remittance fee. The transaction fee is typically between 0.1% and 1% of the repatriated amount and the remittance fee is between 50 to 200CNY. If the transfer goes through an intermediate agency, you can expect another $20 transfer fee. Finally, your receiving bank may charge a foreign incoming wire transfer fee which can be free or another $20 or so. It’s best to check online to see which foreign banks your Chinese bank can wire money directly to and plan accordingly if you have multiple overseas bank accounts.
How a Business can Repatriate Funds
Typically, there are 3 acceptable reasons to send company money out of China. The first is as dividends to shareholders, the second one is as expenses or royalties to the overseas parent company, and the third is as an intra-company loan. The third option isn’t viable as it is intended for borrowing capital and is not suitable for repatriating funds. The borrowing company is, by law, required to pay back the lending company with interest. We won’t go into this option in this article.
Dividends to shareholders
To repatriate profits from a Chinese bank as dividends back to overseas shareholders, the company in China must pass an external annual audit by an accounting firm. This annual audit is done once a year around the Chinese new year, usually in April. This means the window of time to send dividends out of China is once a year around Chinese New Year. To pass the audit, all corporate income taxes must be settled, and accumulated losses over the past years of operation must be accounted for.
The company also needs to keep a minimum of 10% of its after-tax profits in a reserve fund if the company hasn’t accrued at least 50% of the company’s registered capital yet. Once all these conditions are met, Chinese banks can transfer the profits of the company out of China and into overseas accounts.
Your company’s corporate bank will need to see:
- The business license of the company.
- The company’s certificate of tax registration.
- The audit report on the company’s injected registered capital.
- The annual report of the external accounting firm.
- Receipts of tax payable.
- A company board resolution for the profit distribution.
The last catch is the withholding tax. The withholding tax takes 10% of the repatriated sum, although it may be subject to international treaties depending on which country the receiving account is in, for the most part, this is a 10% cut.
Paying dividends can take up to 1-2 months.
Intra-company payments: royalties & expenses
Another popular option is to pay royalties to the overseas parent company for using the company’s trademark in China, which makes perfect sense from a legal standpoint. This method is an attractive model for many companies as royalties are exempt from both the withholding tax and the value-added tax (VAT). Also, royalties are typically based on a percentage of generated revenue, which is also ideal in many cases.
Intra-company expenses are also a popular option for repatriating funds from the Chinese entity to the overseas one. This one is subject to VAT, however, and Chinese authorities will meticulously check that the money is going where you say it is going through transaction records and invoices. If you are paying for services or goods with an overseas company, but then collecting payment with the company in China, this is the ideal option.
Royalties and other expenses are thoroughly inspected in China. To send out these payments overseas, expect to meet the bank and show pre-drafted legal contracts between the overseas parent company and the company in China, a business license, a tax number certificate, as well as your invoices in China and invoices with the overseas holding company.
Strategies for Successful Money Repatriation
When it comes to repatriating funds from China, businesses need to employ effective strategies to ensure a smooth and financially beneficial process. Here are some key considerations to optimize money repatriation:
Understand currency conversion and exchange rates: Stay informed about currency conversion rates and fluctuations to make informed decisions when repatriating funds. Working with trusted financial institutions can provide valuable insights and help minimize risks.
Minimize costs and fees: Explore different options to minimize costs and fees associated with repatriation. Compare service providers, negotiate favorable terms, and consider bulk transfers to reduce expenses. Be aware of any regulatory requirements that may impact repatriation costs.
Plan and time repatriation strategically: Timing is crucial when repatriating funds. Stay updated on exchange rate trends, tax regulations, and economic conditions. Working closely with financial advisors can help develop a repatriation strategy that aligns with your business objectives and maximizes financial benefits.
Seek professional advice and assistance: Money repatriation in China can be complex, so it’s advisable to seek professional advice. Consult with experts who have experience in international financial transactions and are familiar with local regulations. They can provide guidance on compliance, tax implications, and efficient repatriation methods.
By implementing these strategies, businesses can navigate the money repatriation process effectively, minimize costs, and optimize financial benefits.
Repatriating funds for both individuals and companies is made dramatically easier if your taxes and tax history are in order.
For companies, it’s important to be compliant with the tax reporting from the moment the company receives its tax number certificate from the tax bureau. It’s also important to have a well-thought-out structure when incorporating in China.
For foreigners working here, it’s important that your employer is following the proper tax regulations and not paying you in cash or cheating the tax system by paying part of your salary as an expense. These practices will most likely backfire on you when trying to repatriate money at the bank and your options may be limited. The best thing to do is to start complying with the system as soon as possible. That way you can go through the Chinese bank system and follow the official procedure and although the process takes some time and involves some fees, it gets the job done in the best way possible.