It’s a lament that is not uncommon among foreign investors in mainland China. The country imposes controls on the inflow and outflow of foreign exchange, with the State Administration of Foreign Exchange (SAFE) as lead agency and various other government authorities involved in control procedures, including the provincial branches of the State Tax Bureau, local tax bureaus, Trademark Registration Office and Ministry of Commerce.

 

Foreign investors have to get approval from each relevant authority before they can go to the bank to make the actual remittance. Unfortunately, there is no single government authority that coordinates the controls, and the various agencies do not share a centralized database. So at the bank, the conversation can run thus:

 

 

Designated as gatekeeper by SAFE, the bank is responsible for ensuring that the required documents, i.e. approval documents from various government authorities, are in place. However, while banks have instructions regarding the required documents for different types of funds, they may not always be updated in a timely manner when different authorities issue new procedures or requirements.

 

In such cases, the bank will not process the remittance, even though the remitting company followed the updated procedures to the letter. The bank will have to communicate with the relevant authorities, and that could mean a long wait for the remitter.  

 

No remittance can be made without the foreign investor presenting proof that it has paid the correct taxes. But making tax payments and obtaining tax clearance certificates for the purpose of making remittances can be time-consuming procedures.

 

Foreign investors are required to pay taxes, including withholding tax and business tax, when applying for tax clearance certificates. They are subject to different tax treatment depending on how they are constituted. A company that is constituted as a Permanent Establishment (PE) will be taxed differently from an enterprise that is not a PE. In practice, non-PE foreign investors need to submit numerous supporting documents to substantiate their non-PE status, and the final tax assessment is highly dependent on the officials’ tax knowledge and personal judgment.
  

In order to obtain tax clearance certificates, enterprises have to deal with two different tax authorities, the State Tax Bureau and Local Tax Bureau. There is no shared database between these two bureaus, meaning that enterprises have to receive separate approvals. In addition, enterprises cannot start applying for the Local Tax Bureau’s approval unless they have already received approval from the State Tax Bureau.