Leaf Leaf
Dividend Distribution

It is known that China maintains the regulatory system on foreign exchange flowing into and out of China. Since repatriation profit from China is always one of the biggest concerns of foreign investors, it is wise and advisable for foreign investors to get familiar with the policies regarding profit repatriation and pick up suitable repatriation strategy for themselves to ensure they can finally receive the fruits of their investment.

There are several main ways for foreign invested enterprises (the “FIEs”) to repatriate profits from China, including the dividend distribution, payment of intercompany service fees, payment of royalties, extending loans to its overseas related companies. This article will provide some basic idea for dividend distribution, which is the most common and direct way to remit profits.

I. Principles for Dividend Distribution

The Foreign Investment Law of People’s Republic of China (the “PRC”) has came into effect since January 1, 2020, and since then the PRC Equity Joint-Venture Law, the PRC Wholly Foreign-Owned Enterprises and the PRC Wholly Foreign-Owned Enterprise Law have been repealed, and the FIEs will be subject to the PRC Company Law.

According to the PRC Company Law, shareholders of limited liability companies shall be entitled to dividends according to the ratio of the paid-up capital, unless all the shareholders agreed that the profits shall not be distributed in accordance with the ratio of capital contribution.

II. Requirements for Dividend Distribution

  • Clear Tax of the FIEs

The FIEs shall declare and settle relevant tax with the competent tax bureau before dividend distribution.

Considering tax issue is quite systematic and comprehensive, it is advisable for the FIEs and the foreign shareholders to consult with their tax advisors for a case-by-case analysis.

  • Make up losses of previous years (if any)

If there is any accumulated loss of the FIE in previous years, the after-tax profits shall first be used to make up such loss before distributing dividends.

  • Contribute 10% of profits into the statutory reserve fund

According to the PRC Company Law, the FIE shall contribute 10% of the after-tax profits into their statutory reserve fund. The FIE may discontinue the contribution when the aggregate sum of the statutory reserve fund is more than 50% of its registered capital. 

In addition, the FIE may contribute an optional reserve fund from the after-tax profits if a shareholder resolution is made on this regard.

  • Withhold tax on behalf of foreign shareholders

Generally, the FIE shall withhold relevant tax on behalf of its foreign shareholders, but the FIE or the shareholders may check whether they may enjoy favorable tax treatment under either or both of following conditions:

  1. If a double tax avoidance agreement is available between the foreign shareholders’ country/region and China, and the foreign shareholders qualify as the beneficial owners, a preferential withholding CIT rate may apply.
  2. If non-resident foreign shareholders decide to re-invest the dividends derived from FIEs to projects and sectors which are not prohibited by Chinese government, i.e. those not listed as the prohibited sectors as specified in the Special Administrative Measures for Foreign Investment ( also known as the “Negative List”), they may enjoy tax deferral treatments when certain conditions are satisfied.

III. Timeline for Dividend Distribution

The payment of dividend shall follow the timeline given in the relevant resolution. If the resolution is silent on the payment timeline, the provisions of the Articles of Association (if any) shall prevail. If the resolution and the Articles of Associations are both silent on the timeline, the dividend shall be paid within 1 year after the resolution is made.

IV. Remedy for Shareholders

If the FIE has not made a profit distribution to the shareholders for five consecutive years although the FIE has been profitable for those five consecutive years and satisfy profit distribution requirements stipulated in PRC Company Law, shareholders who cast an opposing vote to a resolution passed by the board of shareholders may request that the FIE acquire their equity interests based on a reasonable price.


Remitting profits as dividends is the most common and the most straightforward way for FIEs to achieve cash repatriation. However, we shall also aware that dividend distribution may takes several weeks or more depending on different cases. Subject to the current legal framework and regulatory system, dividends distribution is usually made annually, and the interim dividends are not permitted. Besides, when the amount of dividends exceeds US$50,000, the dividend distribution shall be authenticated by the local tax bureau and the local bank.  

To know more, please contact:

Bruno Grangier

Jean-Philippe Engel

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