Recent Court Cases of Foreign Exchange Violation
Time to consider legal means to expatriate profits from Mainland China
In April and June 2022, the State Administration of Foreign Exchange published a number of non-compliance cases in remitting money out of Mainland China, involving illegal trading in foreign currency.
The First Notice involves a total of 10 cases on illegal use of remittances for Gambling outside the territory of Mainland China by individuals. In most cases, they swiped cards in the POS Terminal of Mainland China Merchants. While the amount involved may not be significant, severe penalty of around 10% of the amount of money involved have been imposed on these individuals . Such records will also appear in the China Social Credit System of these individual.
The Second Notice involves a total of 10 cases on illegal remittance of money out of Mainland China via “Underground Money Exchange” (地下钱庄) by individuals and corporates. Similarly, severe penalty of around 10% of the amount of money involved have been imposed. Such records will also appear in the China Social Credit System of these individual.
Reference:
https://www.safe.gov.cn/big5/big5/www.safe.gov.cn:443/safe/2022/0402/20814.html
https://www.safe.gov.cn/safe/2022/0610/21070.html
Points to note:
Based on our experience, the use of “Underground Money Exchange” is not uncommon for enterprises which have set up in both Hong Kong and Mainland China. With the advancement in technology and monitoring system in Mainland China, such kind of illegal actions are strictly not recommended.
To us, many of these corporations actually have legitimate means to transfer money in and out of Mainland China to fulfill their purposes. The costs of transfer (including China withholding tax (if any)) are quite low and similar to the illegal means. It was simply they did not realise that their group structure and business arrangements could be rearranged such that they could transfer money out of China in a legitimate manner.
Consult with your tax advisor and usually there will be another way to solve your foreign exchange problems.
