Mainland China Outbound Remittances
With a view to mitigate the risks of loss of tax revenue in respect of outbound payments to foreign institutions and individuals, it is required by the Mainland Chinese tax authorities to go through certain procedures before outbound remittance can be made from out of Mainland China.
Nature and amount of outbound remittance subject to the requirements
Pursuant to the Bulletin [2013] No. 40 (“the Bulletin No. 40”) issued by the State Administration of Taxation (“SAT”) and State Administration of Foreign Exchange (“SAFE”) of Mainland China, which has been effective as from 1 September 2013, outbound remittance of the following payments (except those specifically exempted) in the amount exceeding USD 50,000 (or any other equivalent currency) is required to perform tax registration in Mainland China before the remittance can be made:
- Trading service payments made to foreign institutions or individuals in return for their provision of services including transportation, tourism, telecommunication, construction & installation, labour subcontracting, insurance, finance, computer & information, patent granting, culture, sports & entertainment, other commercial and government services;
- Remuneration payments to foreign individuals in return for their work performed in Mainland China;
- Dividends, profits, interests, guarantee fees, donations of non-capital transfers, compensations, taxes and occasional payments made to foreign institutions or individuals;
- Payments for finance leasing, transfer of immovable properties, transfer of equity interests and other legitimate investment returns to foreign institutions or individuals.
Requirements before outbound remittance
Prior to the Bulletin No. 40, the domestic institutions/individuals (“the Applicants”) were required to obtain a tax clearance certificate before making an outbound remittance. However, according to the Bulletin No. 40, the Applicants only need to perform a tax registration by submitting a completed tax registration form (the ‘Form’) together with the underlying documentations, such as a copy of a sealed contract/agreement and the transaction proof, to the relevant Mainland Chinese tax authorities before the outbound remittance.
In general, the tax authorities will immediately stamp and return one copy of the Form to the Applicants for the latter’s banks to process the proposed outbound remittance. The tax authorities will then review the Form and the underlying documentations supplied by the Applicants, which is generally completed within 15 days after receipt of the documents.
Following the above, as a result of the Bulletin No. 40, the administrative procedures in respect of outbound remittances have changed from a system in which outbound remittance cannot take place until after the tax liabilities have been checked, into a system of ‘payment first, checking tax liabilities later’.
New exemption on tax registration
According to the Bulletin No. 40, profits earned by foreign investors from direct investment in Mainland China and reinvested in Mainland China at the amount exceeding USD 50,000 are required to perform tax registration in Mainland China. However, such requirement has been exempted pursuant to the Bulletin [2021] No. 19 (“the Bulletin No. 19”) issued by SAT and SAFE, which has been effective as from 29 June 2021.
Simplified procedures for multiple outbound remittance made under the same contract
Pursuant to the Bulletin No. 40, for multiple outbound remittance made under the same sealed contract/agreement, the Applicants are required to perform tax registration (i.e. to submit the Form, but no longer the underlying documentations) for each subsequent remittance made.
However, according to the Bulletin No. 19, the Applicants are only required to conduct the tax registration once prior to the first remittance and no longer required to perform any tax registration for the subsequent payments governed under the same contract/agreement.
Conclusion
It appears that the Mainland Chinese tax authorities have been relaxing and simplifying the tax registration requirements. Nevertheless, the rules governing the tax liabilities arising from outbound payments to foreign institutions/individuals have not been changed.
Indeed, the simplified tax registration requirements might create the risk of missing out the tax payment obligations. Therefore, one still has to be well aware of the tax obligations in respect of the outbound remittance. If necessary, HKWJ Tax Law & Partners Limited can provide the relevant assistance with mainland China taxation management.
