China eases control over overseas remittance

A further and encouraging step was taken by the State Administration of Taxation (SAT) jointly with the State Administration for Foreign Exchange (SAFE) to ease the process of dealing with overseas remittances. The new regulation was issued on July 09, 2013 and implemented and put into force on September 01, 2013.

This new implementation is a welcoming step for many foreign invested companies operating in China. This move will smoothen the process of getting approvals to process payments and make overseas remittances and avoid the related delays.

Before the changes brought by the Announcement 40, the old model required the company making an overseas remittance to get the approval or tax clearance for payments exceeding USD 30,000. Furthermore, the approval had to be obtained before the remittance so that many payments were delayed because of the time it was taking to get the approval.

Many MNCs pointed out the negative effects of the on-going tax clearance system and the inefficiency it created in commercial arrangements. The new system into action does not require any more pre-remittance examinations for foreign payments. This means that it would not be required any tax clearance prior to the overseas remittance avoiding the slow-down effect that the previous system entailed.

Although this announcement brings about an easing of the process related to overseas remittances some have mentioned an increased risk in discussing this new law. With the new tax recordal filing system taxpayers may face greater penalty risks if they are unable to demonstrate that PRC taxes in connection with the remittance have been adequately settled.

This new provision certainly gives an impression of a more relaxed exchange system that China is willing to favor. This is noteworthy especially considering the previous system that regulated funds flowing in and outside China and the strict requirements and documentation that was needed for a remittance application to be accepted.

Although it might include an increased risk this new model certainly brings considerable benefits. The shifting of the examination process that is not overlapping and slowing down the remittance process is translated into benefits for the cash flows of the companies involved. The new system sees tax clearance not linked anymore to the remittance that turns into an accelerated and simplified process.

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