Can a company repatriate all their profits made in China?

Only profit that has undergone annual audit can be repatriated. Annual audit for tax compliance conducted by the local tax authority is usually completed around June or July every year. The audit allows the State Administration of Taxation (SAT) to make sure all corporate income tax (CIT) has been paid up with regard to the profits being distributed. In addition, no profits can be distributed before losses from previous years have been made up, after which the remaining balance will be available for redistribution. The tax authorities will confirm how much a company can repatriate based on the net profit percentage.

When remitting the funds, banks will generally require an audit report and an annual CIT return to substantiate the distributable profit for the year. If the company chooses to postpone repatriation to the following year because of cash flow concerns, an additional special audit report will be required.

Not all profits can be repatriated or reinvested after tax clearance. A portion of the profit (at least 10 percent for WFOEs) must be placed in a company’s reserve fund account. This account is capped when the amount of reserves reaches 50 percent of the registered capital of the company. The investor can also choose to allocate some of the remainder to a staff bonus or welfare fund or an expansion fund, although these are not mandatory for WFOEs. Joint ventures are also required to allocate money for welfare funds, staff incentives, and the enterprise development funds (for investment purposes), with the exact percentages determined by the Board of Directors.

China levies withholding CIT on profits or dividends repatriated to non-resident taxpayers, with the amount varying from 0 to 10 percent depending on the stipulations of the relevant double tax avoidance agreements (DTA). Dividends connected to profits made prior to January 1, 2008 are exempt from this withholding tax.