A wholly foreign-owned enterprise (WFOE) that has accumulated distributable profits can generally pay a dividend to its foreign shareholder. The payment is not simply a bank transfer: company law, tax and foreign-exchange requirements all apply, and the bank will check that the underlying documentation supports the remittance.
The dividend route
Distributable profits are calculated after tax and after making the statutory reserve contributions required for the company. The board proposes the distribution and the shareholder approves it in accordance with the articles of association. The company then prepares the tax and banking documents for the remittance.
If the company has several foreign shareholders, the distribution should follow the agreed shareholding and any special rights in the constitutional documents. A side agreement that changes the distribution without a proper corporate resolution can create problems at the bank and in a later dispute.
Tax points to confirm
China generally imposes withholding tax on dividends paid to a non-resident corporate shareholder. The domestic rate is 10%, but an applicable tax treaty may reduce it. The company should confirm the treaty position and obtain any required clearance before payment.
Tax residents of jurisdictions with a favourable treaty still need to satisfy the beneficial ownership and substance tests. A letter of credit, a shell holding company or a structure with no commercial rationale may not qualify, and the tax authority can review the arrangement.
Documents the bank will expect
- Audited financial statements and evidence of retained earnings.
- Board resolution and shareholder resolution approving the distribution.
- Tax payment or withholding documents, and any treaty relief approval.
- Register of shareholders and the foreign shareholder's incorporation documents.
- Bank details of the recipient and a clear purpose description.
The exact list varies by bank and by the size and history of the payment. A first distribution often receives more scrutiny than a routine payment by an established company.
Timing and practical risks
Allow time for the audit, the tax filing and the bank's review. A dividend declared before the accounts are finalised, or paid without the required reserve, may need to be reversed or re-documented. If the company has outstanding tax assessments or unresolved related-party balances, resolve them before declaring the dividend.
Intercompany loans and service fees are not a substitute for dividends. Payments labelled as fees without genuine services and supporting contracts can be recharacterised, with tax and foreign-exchange consequences.
Checklist before remitting
- Confirm the distributable profit from the audited accounts.
- Check the statutory reserves and any contractual restrictions.
- Pass valid board and shareholder resolutions.
- Confirm withholding tax and treaty relief.
- Prepare the bank package and a short explanation of the payment.
- Keep the tax and bank records for future audits.
Planning the distribution before the year-end accounts are signed usually produces a cleaner file than assembling the documents after the payment is requested.