How to avoid getting your cash trapped in China

July 29, 2009 | BY

clpstaff &clp articles

Foreign investors can be caught out by China's registered capital or reserve fund requirements. Where an investment with funding primarily obtained from outside mainland China produces cash investment returns, the onshore structure may restrict the amount of cash that can be remitted out of the country

Foreign investors are sometimes caught out by China's registered capital or reserve fund requirements. Where an investment with funding primarily obtained from outside mainland China produces cash investment returns, the onshore structure may restrict the amount of cash that can be remitted out of the country. The fact that the renminbi is not fully convertible does not help either.

To help clarify the situation for investors with money worries, we ask three specialists:

How can I avoid getting my cash trapped in China?

The international perspective
Despite strict regulation, there are options. Paying dividends is the most common and straightforward method of extracting cash, although the requirement of a 10% statutory reserve reduces the distributable profits.

In addition, profits cannot be distributed to foreign shareholders until the company makes good any outstanding losses and pays income tax, which can delay dividend payments.

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