Chinese Enterprises' Non-trade Overseas Payments

Compliance Guidance and Optimization Strategies for Chinese Enterprises' Non-trade Overseas Payments

As global economic integration speeds up, Chinese enterprises' cross-border activities grow. Non-trade overseas payments, including profit repatriation, divestment, and service fees, draw much attention. Different payment methods bring varied tax costs, regulations, and risks. Here are key guidelines based on new policies.

I. Profit Repatriation: Tax Treaty Benefits

Chinese law mandates a 10% withholding income tax on dividends to overseas shareholders. But with a China - country tax treaty, the rate drops to 5% - 7%. 

For example, China - Germany treaty sets a 5% dividend rate. In 2023, a German - invested firm paid over 2 million yuan extra due to missed treaty filing. Enterprises should check treaties, prepare docs, and file for lower rates.

II. Divestment (Capital Reduction): Tax & Risk

Divestment may incur 10% capital gains tax or corporate income tax. Meeting "special tax treatment" (e.g., 12 - month business continuity) in Cai Shui [2009] No. 59 allows tax deferral. Yet, risks abound. A tech firm paid 5+ million yuan in back taxes in 2022 for skipping asset valuation. Sending assets to tax havens like Cayman Islands invites anti - tax probes. Use pro valuations and consult advisors.

III. Overseas Service Fee Payments: VAT & Tax

Enterprises must withhold 6% VAT and 10% income tax for overseas service fees, unless treaties exempt. Services fully overseas may waive VAT. Tax audits focus on fair rates in related - party deals and service proof. One firm paid extra for overpriced Hong Kong - related consulting. Set strict review rules, keep proof, and justify rates.

IV. Regulatory Changes: Golden Tax IV & FX Rules

Since 2024, Golden Tax IV shares cross - border data with forex authorities. The "Three Principles of Business" tighten oversight. Splitting over - $50,000 payments risks Class B supervision. Paperless tax filing cuts processing to 3 days. Build internal controls, avoid payment splitting, and adapt to e - filing.