Tax clearance procedure changes for foreign remittances

Under the prior system for administering the outbound remittance of dividends, capital gains, royalties, interest, salary, compensation, donations, taxes, guarantee fees, financial leasing income, property proceeds, occasional income and other legal items that are generated in service trade, a tax clearance certificate (TCC) was needed before the remittance could be made. The TCC mechanism was introduced to safeguard tax collection on outbound remittances. However, in practice, the system has caused undue delays and sometimes even prevented lawful remittances. In recognition of these problems, the State Administration of Taxation (SAT) and the State Administration of Foreign Exchange (SAFE) jointly issued SAFE and SAT Joint Bulletin [2013] No. 40, effective from 1 September 2013.

Recordal system

Bulletin No. 40 introduces a simplified recordal system for remittances. It has minimal filing requirements and does not require a TCC for certain remittances listed in Bulletin 40; for remittances not listed in Bulletin No. 40, a TCC is still required. Under this new system, the relevant parties only need to file a copy of the sealed contract or agreement with the relevant tax authorities if a single outbound remittance exceeds US$50,000.

If the sealed contract or agreement is not available, copies of the related transaction documents will satisfy the filing requirement. Once the relevant tax authorities have determined that the filing is complete, they have 15 days to review the substantive content of the filing. However, the domestic payer is free to remit the money offshore as soon as the filing is complete, and prior to the tax authorities’ substantive review.

Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com