How Profits from a Mainland Chinese Company Are Remitted to Its Hong Kong Parent Company

When a Hong Kong parent company holds shares in a mainland Chinese company, a key concern for overseas investors is how profits can be legally transferred from the mainland company to the Hong Kong parent.

Below is a practical, step-by-step operational guide covering the complete compliant process of remitting dividends from a mainland company to a Hong Kong parent company, including procedures, required documents, taxation, foreign exchange compliance, and bank operations.

1. Confirm the Core Corporate Structure

The most common structure is:

Hong Kong Company
⬇
Mainland China Company

When the mainland company generates profits, funds are typically transferred to the Hong Kong parent through:

Dividend Distribution

This is the most common and compliant method for profit repatriation.

2. Five Prerequisites Before Profit Remittance

If any of these conditions are missing, banks will usually refuse the remittance.

2.1 The Company Must Have Profits

The company must:

• Have distributable profits
• Cover any previous accumulated losses
• Allocate statutory reserve funds

Under Chinese Company Law:

Net Profit
→ First offset previous losses
→ Allocate 10% statutory reserve
→ Remaining profit can be distributed as dividends

2.2 Corporate Income Tax Must Be Paid (25% or 5%)

Standard Corporate Income Tax (CIT): 25%

Example:

Profit: RMB 10 million
CIT: RMB 2.5 million
After-tax profit: RMB 7.5 million available for distribution.

Preferential small enterprise rate: 5%

Example:

Profit: RMB 2 million
CIT: RMB 100,000
After-tax profit: RMB 1.9 million available for distribution.

2.3 FDI Foreign Exchange Registration Must Be Completed

If the Hong Kong company is a shareholder, the mainland company is classified as a Foreign-Invested Enterprise (FIE).

It must complete:

FDI Foreign Exchange Registration

Without this registration, banks will not allow cross-border profit remittance.

2.4 Genuine Shareholding Structure

Banks will review:

• Ownership structure
• Ultimate beneficial owner (UBO)
• Investment pathway

There must be a clear chain:

Investment → Business Operations → Profit Distribution

2.5 Annual Audit Must Be Completed

Banks typically require:

• Annual audit report
• Tax payment certificates
• Profit distribution basis

3. Full Operational Process (Practical Version)

The complete process usually takes 2–6 weeks.

Step 1: Annual Financial Audit

Engage an accounting firm to prepare an annual audit report.

Key contents include:

• Financial statements
• Profit status
• Distributable profits

Documents required:

• Balance sheet
• Income statement
• Cash flow statement

Step 2: Board or Shareholders’ Resolution on Dividend Distribution

The company must issue a dividend distribution resolution.

It should include:

• Dividend amount
• Shareholding ratio
• Distribution timing

Example:

Hong Kong company owns 100% of the mainland company.
Dividend declared: RMB 7.5 million.

Step 3: Tax Filing for Non-Resident Enterprise Dividend Tax

File with the tax authority for withholding tax on dividends paid to non-resident enterprises.

Standard tax rate: 10%

If eligible: 5%

This is based on the Arrangement for Avoidance of Double Taxation between Mainland China and Hong Kong.

Conditions for the 5% Tax Rate

The Hong Kong company must:

1️⃣ Hold at least 25% equity in the mainland company
2️⃣ Provide a Hong Kong Tax Resident Certificate

Document issued by:

Hong Kong Inland Revenue Department

Tax Resident Certificate

Tax Calculation Example

After-tax profit: RMB 7.5 million

Standard 10% dividend tax:

Tax: RMB 750,000
Remittance: RMB 6.75 million

Reduced 5% treaty rate:

Tax: RMB 375,000
Remittance: RMB 7.125 million

Step 4: Tax Filing Documents

Documents required for tax filing:

1️⃣ Application form for treaty benefits (non-resident enterprises)
2️⃣ Hong Kong Tax Resident Certificate
3️⃣ Hong Kong company registration certificate
4️⃣ Shareholding structure chart
5️⃣ Dividend board resolution
6️⃣ Audit report
7️⃣ Tax payment certificate

After review, the tax bureau will issue a tax clearance certificate.

Step 5: Apply to the Bank for Dividend Remittance

Submit an application to the company’s bank in mainland China.

This process is called:

Dividend Remittance

Banks mainly review:

• Tax filing documentation
• Dividend resolution
• Audit report
• Shareholding structure

Step 6: Documents Required by the Bank

Banks usually require:

Company Documents

• Business license
• Articles of association
• Audit report
• Dividend resolution

Tax Documents

• Tax payment certificate
• Tax filing form

Shareholder Documents

For the Hong Kong parent company:

• Certificate of Incorporation
• Business Registration Certificate
• Director information

Step 7: Foreign Exchange Registration and Remittance

The bank records the transaction in the foreign exchange system.

The transaction is registered through the system of the State Administration of Foreign Exchange (SAFE).

After registration, the bank executes the cross-border transfer.

The payment remark is usually: Dividend

Step 8: Funds Arrive in Hong Kong

Remittance route:

Mainland China Bank
→ SWIFT system
→ Hong Kong Bank

Arrival time:

1–3 business days

4. Fees and Exchange Rates

Typical costs include:

Bank service fee: 0.1%–0.2%
Telegraphic transfer fee: RMB 150–300

Some companies use the CIPS (Cross-Border Interbank Payment System) for RMB remittance, which can be cheaper than SWIFT transfers.

5. Typical Timeline

Stage	Time
Annual audit	4 weeks
Tax filing	3–7 days
Bank review	3–5 days
Remittance arrival	1–3 days

Total estimated time: About 2 months

6. Five Common Reasons Remittances Are Rejected

Many companies fail to remit profits because of:

1️⃣ No FDI registration
Banks will reject the transfer.

2️⃣ No audit report
Banks cannot verify profit sources.

3️⃣ Hong Kong company lacks economic substance
May be viewed as treaty abuse.

4️⃣ Complex shareholding structures
Example: BVI → Cayman → Hong Kong
Banks will require ultimate ownership disclosure.

5️⃣ Dividend tax filing not completed
The tax authority will not approve the transfer.

7. Practical Recommendations

Prepare in advance:

7.1 Apply for the Tax Resident Certificate

Processing time:

2–4 weeks

7.2 Complete the Audit Early

Banks always require an audit report.

7.3 Avoid Abnormally Large Dividend Amounts

Banks may ask:

Why is the dividend unusually large or sudden?

8. One-Sentence Summary

The process for remitting profits from a mainland company to a Hong Kong parent is:

Audit → Dividend Resolution → Tax Filing → Withholding Dividend Tax → Bank Application → Foreign Exchange Registration → Cross-Border Remittance

This is the complete operational guide for transferring profits from a mainland Chinese company to a Hong Kong parent company, commonly used by foreign investors in practice.