VAT in China Part 4

When a foreign invested company in China is lacking on money, the foreign headquarter often would like to transfer cash in order to keep the liquidity. However, what sounds like an easy bank transfer, in reality, turns out to be a complex subject. In the following, we will introduce three possibilities how to channel money to your Chinese branch. What we can already tell you in advance is: There is no fast way getting money into China.

Intercompany contracts

Through applying for an export VAT exemption, companies can now take the chance to provide intercompany services which are exempted from VAT to their mother company in it´s home country. Via internal transfer prices, the Chinese WFOE can issue an invoice and thus charge the mother company. In the past a lot of foreign invested companies in China issued very high invoices in order to transfer tax free money into China. This is not possible anymore. The interactions will be scrutinized in depth by the tax authorities and prices which are not in compliance with the “one arm´s length” principle won´t be accepted. Companies genuinely providing service exports will very likely satisfy the new official rules. Now it is necessary for companies, which in the past were able to self-assess their eligibility for VAT exemption, to apply for review by the tax authorities.


The following general administrative and procedural requirements apply to all kinds of exported services eligible to VAT:

  • Services must be provided under a written contract
  • Payment for the services must be made from outside of China

If a foreign head office outside of China uses its China head office to transfer money to another branch inside China, for services exported to the foreign head office, it would not comply with the current requirements and thus not qualify for VAT exemption. To make sure, a recipient cannot claim any input VAT, it is not allowed to issue invoices including VAT.

Furthermore, companies are required to immediately submit the following documents after having signed the contract and before making any transaction when applying for the VAT exemption. They have to be translated into Chinese and need legal or official approval e.g. stamps:

  • Cross border taxable service tax record filing form that was issued 2014 at the time of Announcement 49 release
  • Original and photocopy version of the contract
  • Proof that the service recipient is located overseas when the services were provided 

Beside the general conditions there are severalspecial conditions that must be met for certain categories of service as shown below in order to prove, that the service supply was done outside of China.

These categories are: 

  • Engineering survey and exploration services
  • Conference and exhibition services
  • Warehousing services
  • Leasing of tangible movable property
  • Distribution and broadcasting services for radio and television programs
  • Advertisement services

However, for such intercompany services, the Chinese branch really has to perform services to the foreign mother company. It is not just possible to transfer money without any counter service.

Intercompany credits

At the very beginning of the WFOE establishment, a registered capital of the WFOE has to be set by the mother company. Additionally the total investment of the mother company has to be defined. In case the mother company would like to send money to it´s Chinese branch in form of a credit, the gap amount between the total investment and the registered capital can be provided. At that point we have to warn companies which now might think that for the establishment of the WFOE the total investment can simply be chosen at a very high scale and thus nearly unlimited credits can be provided. The range between the total investment and the registered capital underlie special ratios which have to be considered when determining the registered capital. Additionally credit contracts cannot just be drafted in order to transfer money without the intention of returning the money to the mother company. The credit contracts have to be set on an arm´s-length including all generally used credit policies. Of course these credit policies also have to be fulfilled and cannot just be paused or neglected. The application for an intercompany credit would take you about one month.

Increase of the capital stock

Another option for transferring money to the Chinese branch is by increasing the registered capital and the total investment of the WFOE in China. However, doing this after the completed setup of the WFOE is a very time consuming and complicated process. Companies should at least calculate 1-2 month for this step as several approvals at certain authorities have to be applied for.

This was the last article of our VAT article series. Also read our articles ‘VAT in China’ Part 1, 2 and 3 of the series and get to know the basis of the VAT system in China.

If you have any further questions about VAT in China you contact our Partner Grace Shi via email:


 Grace 150x225   Grace Shi

Grace Shi is a partner at ECOVIS Beijing China. She has over 12 years of experience in accounting, auditing, and tax advisory services in both international accounting firms and large Chinese corporations. She has an international MBA and a US Global Finance Master’s degree. Since 2001, she is a Chinese Certified Public Accountant (CPA) and, since 2002, a Chinese Certified Taxation Agent (CTA). Mrs. Shi is one of the founders of ECOVIS R&G Consulting Ltd. (Beijing). She has perfect skills in written and spoken English and Chinese. For more information, please contact:




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