A company in China (WFOE, JV, regional HQ, etc.) can pay:
- management fees,
- service fees,
- royalties,
- intragroup service charges.
➡️ All of this is allowed in theory, but China strictly controls such payments because they can be used for:
- capital flight,
- tax avoidance,
- shifting profits out of China.
2. Key conditions for payments to be approved
✔️ A. Signed contract + complete documentation
Mandatory:
- service agreement
- detailed service description
- pricing justification
- proof that services were actually provided
- reports, emails, meeting notes, deliverables, etc.
➡️ If the bank cannot see clear evidence → transfer will be rejected.
✔️ B. Pricing must comply with transfer-pricing rules
The amount must be:
- reasonable,
- aligned with the real value of the service,
- at fair market value.
China specifically watches for:
- inflated management fees,
- vague or hard-to-prove services,
- repetitive charges without documentation.
➡️ Arbitrary pricing = risk of tax adjustment.
✔️ C. VAT / taxes on imported services
Management fees or service fees paid abroad are subject to:
VAT on imported services
→ paid in China through the reverse-charge mechanism.
Typical VAT rate: 6% (consulting, management, advisory services).
Some services may be exempt, but conditions are strict.
✔️ D. Withholding Tax (WHT)
Cross-border service payments may trigger:
- 6% VAT
- ~6% local surtaxes
- 10% Corporate Income Tax (CIT) withholding
Total effective tax: typically 10–15%.
A Double Tax Treaty may reduce the CIT rate.
✔️ E. SAFE (foreign exchange) controls
The bank must review:
- the contract
- supporting documents
- VAT payment on imported services
- tax filings
- the background of the group
➡️ If services appear vague or not substantiated → transfer blocked.
3. High-risk service categories
Chinese authorities pay special attention to:
- “general management fees”
- “overhead allocation”
- “corporate charges”
- administrative fees with no clear deliverables
If the service cannot be demonstrated, it is often treated as an illegal profit transfer.
4. Advantages compared to dividends
Unlike dividends:
✔ payment can be made at any time
✔ the company does not need to be profitable
✔ no contribution to the statutory reserve required
✔ more flexible when well documented
5. Risks
- bank rejection of the transfer
- tax reassessment
- reclassification as undeclared profit distribution
- penalties and surcharges
- increased scrutiny during future audits
For any information, please contact our team to info@opkofinance.com.
