Structuring Cost Contribution Agreements between Foreign Parents and Chinese WFOEs
Structure Chinese WFOE cost contribution agreements through verifiable economic ownership, strict cost pool filtering, and robust Special Issue documentation.
Non-Trade Payment
Meaning
Remittance of funds to a foreign entity for purposes other than the purchase of goods, such as services, royalties, license fees or dividends. A non-trade payment is subject to rigorous tax and foreign exchange controls in China to ensure that withholding taxes are paid. It includes payments for technical assistance, software licensing and management fees.
Revenue Clearance
Revenue clearance is required for any single non-trade payment exceeding fifty thousand dollars. The remitter must obtain a tax record filing from the local tax bureau before the bank will process the transfer. This step involves calculating the applicable value added tax and corporate income tax on the outbound sum.
Document Verification
Document verification by the bank ensures that the payment matches the nature of the underlying contract. A non-trade payment might be rejected if the contract lacks commercial substance or if the service description is too broad. Authorities look for signs of disguised profit distributions or capital transfers.
They often request proof that the service was actually rendered to the Chinese subsidiary.
Capital Flow
Currency availability depends on the successful completion of the tax and bank reviews. A non-trade payment is the standard route for repatriating earnings. It concludes the cycle of an investment.