Meet the Expert - Mazars in China

Meet the Expert - Mazars in China

Mazars is an international, integrated and independent organisation, specialising in audit, accountancy, advisory, tax and legal services. As of January 1, 2017, Mazars operates throughout the 79 countries that make up its integrated partnership. Mazars draws upon the expertise of 18,000 women and men led by 950 partners. We assist clients of all sizes, from SMEs to mid-caps and global players as well as start-ups and public organisations, at every stage of their development.

Questions and Answers:

Q: How to transfer your profits smartly back to your mother company in Europe?

Here are a few things to remember before distributing dividends:

Reserve Funds

A profitable enterprise is required to allocate at least 10% of its distributable profits to the General Reserve Fund, or legal reserve, before it can distribute dividends. This reserve merely constitutes an accrual in the accounts; the funds can be used freely for purchases. Once the cumulative reserve fund reaches 50% of the registered capital, the executive body (Board of Directors or Executive Director) can choose to halt this contribution. Other reserve funds, like the Bonus & Welfare Fund or the Enterprise Development Fund, are discretional.

Withholding Tax

Dividends distributed to shareholders are liable to Corporate Income Tax. In the case of foreign shareholders, the profitable enterprise is required to withhold the tax amount and pay it to the relevant tax authorities before it can remit the dividends. 

The applicable rate is defined in the bilateral agreement on the avoidance of double taxation signed between China and the country of the shareholders (commonly known as DTA for Double Taxation Agreement). China signed DTAs with all EU countries. In the case of Belgium, Denmark, Finland, France, Germany, Luxembourg, Malta, the Netherlands, Romania and the UK DTA shave been updated recently (less than 10 years ago). In new DTAs the withholding tax rate is generally fixed at 5% (if beneficial owner holds at least 25% of the capital of the enterprise). 

Ask the Expert - the new BenCham online knowledge sharing programme is aimed at sharing knowledge from BenCham's members on a variety of topics covering from regulation updates to the release of new policy, from the f&b market to cross boarder e-commerce and from One Belt One Road Initiatives to the effect of Brexit on EU SMEs doing business in China. Every month we will invite one or two of our member experts to answer the questions you have.