Meaning
Financial procedures involving the conversion of local currency into foreign funds facilitate the remittance of profits and service fees to recipients outside the borders. Successful outbound foreign exchange settlement depends on providing evidence of tax compliance and the existence of a valid commercial contract. The State Administration of Foreign Exchange oversees these transactions through a network of authorized banks.
Bank Verification
Commercial banks act as the primary gatekeepers by reviewing the required documentation before authorizing a transfer. Documents typically include the tax payment certificate and the business license of the applicant. This decentralized enforcement ensures that outbound foreign exchange settlement occurs only after the relevant authorities have verified the legitimacy of the underlying deal.
Verification occurs at the counter.
Profit Remittance
Capital held by foreign-invested enterprises as net profit may be transferred after the annual audit is complete and all prior year losses are covered. The bank checks the board resolution regarding the distribution of dividends to ensure the amount aligns with the financial statements. This step prevents the unauthorized depletion of local capital reserves through disguised distributions.
Tax Clearance
A large portion of the process involves obtaining a tax recordal for any single payment exceeding fifty thousand dollars. The local tax bureau must confirm that withholding tax on the income of the foreign recipient has been settled. Without this certification, the bank cannot complete the outbound foreign exchange settlement for services or royalties.
