Understanding China’s Tax Reporting Requirements for Overseas Payments

Tax reporting for overseas payments is a regulatory requirement aimed at monitoring capital outflows and ensuring taxes are properly declared and settled. Not all cross-border transactions trigger tax reporting—only those exceeding the USD 50,000 threshold and meeting specific criteria. This process is a prerequisite for banks to approve and execute remittance requests.

For agreements involving multiple international payments, only the first transaction requires tax reporting. Subsequent payments can reference the initial report, and banks are allowed to automatically forward payment details to the tax authorities. This streamlined approach ensures compliance while avoiding repetitive administrative burdens.

Under STA and SAFE Circular [2013] No. 40 and the supplementary Circular [2021] No. 19, tax reporting is mandatory for payments exceeding USD 50,000 in specific categories. These include payments for services provided by overseas entities, salaries for expatriates, dividend distributions, interest payments, lease agreements, and transfers involving real estate or equity.

However, certain payments are exempt from tax reporting. These exemptions include business travel expenses, operational costs of overseas offices, international trade commissions, insurance claims, and financial transactions involving well-known international institutions. Additionally, foreign aid donations by Chinese government agencies and personal foreign exchange used for travel or education are also exempt.

Before initiating an overseas payment exceeding USD 50,000, companies must register and report relevant tax information to the tax authority. This process involves submitting company details, declaring taxable transactions, paying any applicable taxes, and obtaining verification for the remittance plan from the bank.

There are two main channels for tax reporting:

• In-person reporting: Companies may visit the local tax bureau service center to submit their documents. If all materials are complete, a serial number and verification code will be issued for the transaction.
• Online reporting: Companies can use the electronic tax bureau to file their report, fill out digital forms, and upload necessary documents. Upon approval, the system automatically generates a serial number and verification code.

Contracts involving overseas payments always carry tax compliance risks. Liability of foreign investors is a huge topic after the introduction of the new company law in China.

Some companies may attempt to circumvent reporting by splitting payments into smaller transactions under USD 50,000. However, banks closely monitor such behavior and may question the legitimacy of these payments. Engaging in such practices can negatively impact a company’s credit record in the SAFE system.

It’s also important to note that being exempt from reporting does not mean exemption from taxes. Even transactions under the USD 50,000 threshold or those not subject to reporting may still be taxable. Companies that fail to declare taxable income may face fines and interest penalties during tax audits.

Navigating the tax reporting requirements for overseas payments in China demands a solid understanding of tax laws and foreign exchange regulations. Companies must ensure accurate reporting to avoid penalties and maintain smooth financial operations. By following regulatory guidelines and seeking professional tax advice, businesses can effectively manage outbound payments while staying compliant with Chinese tax laws.