Meaning
Regulatory gateway involving the verification of tax compliance and corporate formalities before a foreign-invested enterprise can remit dividends out of China. The State Taxation Administration and the State Administration of Foreign Exchange oversee this process to ensure that all domestic liabilities are settled before capital leaves the country. Profit repatriation clearance requires the entity to demonstrate that it has fulfilled its annual audit obligations and paid all applicable taxes.
Audit Requirement
Submission of an annual audit report by a certified public accountant is the first step in the clearing process. The report must confirm that the company has sufficient net profit after tax to cover the proposed dividend. It also verifies that the firm has made the required contributions to its statutory reserve fund, which usually amounts to ten percent of after-tax profits.
This reserve must be funded until it reaches fifty percent of the company’s registered capital.
Tax Verification
Clearance hinges on the issuance of a tax payment certificate or the filing of a record with the local tax bureau. For payments exceeding fifty thousand dollars, the bank will demand proof that the withholding tax on dividends has been paid in full. The standard withholding rate is ten percent, although tax treaties may reduce this figure.
Authorities check for any outstanding corporate income tax or other levies that might be owed by the enterprise.
Bank Execution
Final remittance of funds is handled by an authorized bank after the presentation of all required documents. The bank reviews the board resolution authorizing the dividend and the audit report.
