Foreign-invested enterprises in China have the right to repatriate profits to their overseas parent company, as long as specific conditions are met.
2. Prerequisites for distributing dividends
✔️ A. Annual statutory audit is mandatory
Before paying any dividends, the company must:
- complete its annual audit (by a certified Chinese CPA), and
- submit its financials to the local tax authorities.
➡️ Without the annual audit, dividend payments are not allowed.
✔️ B. All taxes must be fully paid
Including:
- Corporate Income Tax (CIT)
- VAT
- local surcharges
- any tax adjustments (so-called “tax cleanings”)
➡️ The tax bureau must confirm that the company is fully compliant.
✔️ C. Mandatory legal reserve fund
Chinese law requires companies to allocate:
10% of annual after-tax profit to the statutory reserve,
until the reserve reaches 50% of the registered capital.
➡️ No dividends can be paid until this threshold is met.
✔️ D. Dividends can only be paid from accumulated profits
This means:
- no dividend distribution if the company has accumulated losses,
- prior-year losses must be fully covered before any distribution.
3. Administrative and banking constraints
Dividend distribution requires involvement from:
✔️ The tax bureau
To validate the distributable profit.
✔️ The bank (SAFE – State Administration of Foreign Exchange)
The bank must review:
- the audit report
- board/shareholder resolution on dividends
- tax payment certificates
- JV contract, if applicable
➡️ Transfers are processed under SAFE foreign-exchange controls.
4. Taxation on outbound dividends
Withholding tax (WHT)
The standard rate is:
10% WHT on outbound dividends
Unless a double tax treaty provides a lower rate
— for example, France often qualifies for 5% if conditions are met.
To apply a reduced treaty rate, you must:
- prove the beneficial ownership of the foreign parent,
- submit a detailed application,
- obtain approval from the tax authorities.
5. Practical restrictions
❗ A. Registered capital must often be fully injected
In many jurisdictions, dividends are blocked until the full registered capital has been contributed.
❗ B. Transfer pricing scrutiny
Tax authorities will assess whether profits are artificially depressed.
If suspected → tax adjustment → dividend blocked.
❗ C. Timing constraints
Dividends are typically paid once a year, after the annual audit.
6. Typical step-by-step process
- Annual audit completed
- Calculation of distributable profit
- Board/shareholder approval
- Tax declaration (CIT + WHT)
- Payment of withholding tax
- Submission of documents to the bank
- Cross-border transfer to the parent company
Timeframe: 2 to 6 weeks, depending on the city.
For any information, please contact our team to info@opkofinance.com.
