Newsletter

Let me read a court case in Mainland China...

鈺基國際貿易(上海)有限公司 (“the Company”) has acquired a rented property (“the Property”) located in Shanghai. The purchase funds came from its share capital.

Before the acquisition, the Property had already been rented out. After the acquisition, the Company signed a tenancy agreement with the existing tenant and generated rental income.

The court determined that the relevant foreign exchange settlements were illegal as the Property was not acquired for self-use and therefore the Company was liable on conviction to a fine of RMB980,000.[1]

POINTS TO NOTE
WFOEs in Mainland China are now free to convert their share capitals denominated in foreign currencies into Renminbi to support their operations in Mainland China. Companies are free to exchange the currencies first, but the PRC Authorities would then impose fines if they find out that the Renminbi is subsequently used for prohibited purposes. Examples of prohibited uses are as follows:-

acquisition/development of any real estate not for self-use
direct / indirect securities investment
Loans to unrelated parties
In view of the above, a WFOE should ensure that it has complied with the requirements when using its funds in order to avoid penalty.

You may also be interested in
article-image
tag
HONG KONG TAX
09 August 2021
Inland Revenue Ordinance Section 15F – Double Taxation Risk on MNC with Research & Development (R&D) functions in Hong Kong
article-image
tag
HONG KONG TAX
09 August 2021
Tax Relief Measure: Conditional Surcharge Waiver (i.e., Interest-free) for tax payments by instalment
article-image
tag
HONG KONG TAX
18 August 2021
[Court Case Study] Payment for “going away quietly” NOT subject to Salaries Tax
article-image
tag
HONG KONG TAX
18 August 2021
8.25% Tax Rate available for Hong Kong Insurance Business corporations
article-image
tag
HONG KONG TAX
22 March 2022
Lenient approach by the IRD on application deadline of tax credit claim
article-image
tag
HONG KONG TAX
01 May 2022
Deductibility of Keyman Insurance Policy
article-image
tag
HONG KONG TAX
27 May 2022
PROPOSED PROFITS TAX EXEMPTION FOR FAMILY OFFICE BUSINESS
article-image
tag
CHINA TAX
31 July 2022
LIMITATION ON USE OF CAPITAL FOR WHOLLY FOREIGN OWNED ENTERPRISE (“WFOE”) IN MAINLAND CHINA
article-image
tag
CHINA TAX
31 July 2022
RECENT COURT CASES OF FOREIGN EXCHANGE VIOLATION
article-image
tag
CHINA TAX
31 July 2022
HIGHER BENEFITS BUT STRENGTHENING SUPERVISION ON HIGH AND NEW TECHNOLOGY ENTERPRISE (高新科技企業)