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China currency control
China currency control

Transfer pricing has fast become one of the standout issues in international taxation. Put simply, the practice concerns the price charged for intercompany transactions between entities in different tax jurisdictions. These transactions can be used to shift funds within a multinational company (MNC), making transfer pricing an effective means to manage a firm’s finances and remit its profits.

It’s often said about China that: “You can never get your money out”. Therefore, goes the logic, there is no point in going there in the first place. China does maintain strict capital controls, including severe restrictions on how and when money can leave the country. But money does flow out, in vast amounts. Here, we throw open the door on how companies do actually get money out of China for regular commercial business, including legitimate ‘white' channels, to grey ones, and the black market. 

There are multiple channels companies use for getting funds out of China, some legitimate, some less so, or open to manipulation. To fully understand them, there are certain distinctions that need to first be made clear.

No restrictions on foreign firms' profit transfers

China's foreign exchange authority said this Friday that there are no restrictions on foreign firms' cross-border profit transfers, responding to market concerns about tightened regulation over capital outflows.

As China has realized convertibility under the current account, real international payments and transfers are not restricted, including those of dividend and goods and services trade, according to a statement of the State Administration of Foreign Exchange (SAFE).

Weighed on by a weak Chinese yuan against the U.S. dollar, regulators moved to crack down on illegal cross-border capital flows, while reiterating that normal business will not be affected and foreign investment is still welcome.

An anonymous SAFE official on Thursday dismissed substantial pressures from capital outflows, saying the situation remains controllable. Last month, the yuan fell versus the dollar, but was relatively stable against a basket of other currencies. 

Currency vs. Jurisdiction. 

It is a common misconception that the currency of funds affects how easy it is to move them in and out of China. For example, that if funds are in foreign currency, then it would be easier to move them from China to overseas. Similarly, the misconception that if overseas funds are in RMB, then they can easily be moved to and used in China.

It is important to understand that currency does not matter, when it comes to getting funds out of China. China’s capital controls are not on currency conversion per se, but on the movement of money in and out of China’s borders. China’s currency, the Yuan, even has 2 different symbols on the international currency markets: CNY for domestic RMB, and CNH for offshore RMB. Company vs Personal Funds. 

Both companies and individuals can move funds out of China - with varying ease, cost, and limits - though the methods and means vary. The reason transfers from personal accounts are covered in here is that some companies in China do use personal accounts for business purposes, so these channels are relevant. As different channels are easier for either personal or company funds, companies sometimes face the challenge of ‘converting’ funds from one to the other. Again this distinction is not covered here, however if you wish to read more on this area please call our China international trade lawyer and Chinese business lawyer. 



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