Path made smooth again
A new regulation from the foreign exchange regulator has returned the right of foreign-invested holding companies to re-invest their dividends in China
Issue: February 2012
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foreign-invested holding companies
On March 29 2011, the State Administration of Foreign Exchange (Safe) issued a Circular which had a significant effect on foreign-invested holding companies seeking to re-invest their income in China (see Safe, Circular on the Operating Guidelines for Issues Relevant to Requests for Confirmation of Capital Verification Required in the Re-investment of Foreign-invested Companies with an Investment Nature (国家外汇管理局关于外商投资性公司再投资所涉验资询证有关问题操作指引的通知) and ‘Rocky road for foreign-invested holding companies’, CLP September 2011).
Under this Circular, before making re-investments of legitimate income earned in China, holding companies (Holdcos) must first increase their own registered capital by the same amount. This meant that overseas shareholders of PRC Holdcos needed to pay 10% withholding income tax for the earnings used to increase the Holdcos’ registered...