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-- The State Administration of Taxation (SAT)
Photocopy of the annual cooperative examination report;
Duplicate tax registration certificate for state and local tax;
Audit report issued by CPA firm and annual financial report;
Photocopy of duplicate business license;
Photocopy of capital verification report.
-- The State Administration of Foreign Exchange
Foreign currency registration certificate of FIEs;
Audit report of foreign currency issued by CPA firm.
-- China Customs
Photocopy of the annual cooperative examination report;
Audit report issued by CPA firm and annual financial report;
Original registration certificate for custom declaration.
Preparing for declaration of dividends in China
As already explained, the accounting year runs from January to December in China, so now is a good time to start planning for declaring dividends for repatriation and/or reinvestment of profits. Your decision here will depend upon instructions from your parent company overseas, however there are a number of tax-related factors to bear in mind. This article first introduces the procedure that must be followed when declaring dividends and the extra steps necessary if funds are to be reinvested. It also covers the incentives available to investors either reinvesting funds into their existing Chinese entity or another operation in the country.
Repatriation of profits from China is of course preferable if your organization requires the funds for reinvestment abroad, or to return to the shareholders.
The process for declaring dividends and repatriating funds
1. First of all, the amount of funds available must be confirmed. The fourth quarter's Foreign Enterprise Income Tax (FEIT) filing for 2006 will need to be made in the first two weeks of January 2007 (China having a calendar fiscal year), and after this an annual audit must be carried out. The annual clearance process reflects the results of the audit on the accounts, and this is submitted to SAT for approval.
2. Assuming there are no problems with the submitted documents, SAT will issue a tax receipt confirming the final amount of FEIT payable.
3. With this figure defined, the profit tax payment for 2006 can be completed and the net profit figure derived.
4. Not all profit can be repatriated or reinvested. A portion of the profit (which must be at least 10 percent for WFOEs) must be placed in a fund reserve account. This is treated as part of owner's equity on the balance sheet. This account is capped when the amount of reserves equals 50 percent of the registered capital of the company. In addition, the investor may choose to allocate some of the remainder to a staff bonus/welfare fund or a development fund, although these are not mandatory for WFOEs.
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