Meaning
Regulatory circular issued by the State Administration of Foreign Exchange controls the outbound remittance of funds for service fees and trade transactions by domestic enterprises in China. Domestic enterprises executing cross-border payments must adhere to the tax filing and registration procedures specified under bulletin 40 to ensure compliance. The regulation establishes a reporting threshold for all foreign transactions exceeding fifty thousand United States dollars.
Transactions falling below this threshold do not require pre-remittance tax registration but remain subject to bank review.
Regulatory Scope
Administrative requirements apply to a variety of outbound payments including consulting fees and technology transfers. Under bulletin 40, the tax authorities evaluate the commercial substance of the contract to verify that the domestic company actually received the services. Foreign parent companies charging fees to their Chinese subsidiaries must demonstrate that the services provided were necessary and not duplicative of local operations.
Procedural Trigger
Banking institutions are legally prohibited from processing outbound remittances without receiving the stamped tax registration form from the local tax bureau. Under bulletin 40, the process begins when the domestic enterprise registers the foreign service contract online. The taxpayer then submits physical contracts and withholding tax calculations to the tax authority.
Tax officers review the transaction to determine if the payment attracts withholding income tax and local surcharges. Banks execute the foreign exchange transfer only after verifying the system status. This procedural chain takes between five and ten business days depending on the district.
Enforcement Mechanism
Penalties for non-compliance include severe administrative fines for the domestic enterprise and the processing bank. Since bulletin 40 limits the flow of unregistered foreign exchange, failure to obtain the tax certificate blocks the remittance entirely. The tax bureau retains the right to audit the transactions up to ten years after the payment occurs.
