How to Legally Transfer Profits from China

For foreign business owners operating in China, moving profits abroad is one of the most challenging aspects of corporate finance. Missteps can trigger anti-money laundering (AML) investigations, tax complications, or regulatory scrutiny that may halt your operations. However, the process is far from impossible. With the right methods, proper documentation, and strategic planning, you can transfer profits from China legally and efficiently.

This guide covers the WHITE methods, fully compliant ways to move money abroad, as well as BLACK methods you must avoid. Understanding both is critical: knowing the legal framework protects your business, while recognizing illegal strategies prevents costly mistakes.

Section 1: White Methods - Legitimate Profit Transfers

Method 1: Payment to Suppliers and Deferred Payment from Abroad

One of the simplest and most widely used methods to transfer profits is leveraging supplier payments combined with deferred collection from your foreign entity. This approach allows your Chinese entity to conduct standard business operations while gradually moving profit internationally.

The process works as follows:

1. Your Chinese company pays a local supplier for products or services, following standard business practice.

2. These goods or services are then exported to your foreign company.

3. Payment from your foreign entity is deferred, effectively creating a legitimate credit line.
   

This structure ensures compliance because the transactions reflect genuine business activity. However, attention to detail is critical.

Compliance considerations:

• Maintain complete documentation: contracts, invoices, package lists, and communications.

• Avoid fabricating supplier relationships or inflating quantities; such actions are classified as Trade-Based Money Laundering (TBML).

Advanced Strategy: Adjusting Price Method:

For experienced operators, there’s a sophisticated approach called the Adjusting Price Method. Here’s how it works:

• Your Chinese company pays the supplier full price, including VAT (for example, $100k).

• You invoice your overseas company at a slightly lower price without VAT ($90k).

• The Chinese entity can reclaim VAT after several transactions, legally retaining a small profit.

This strategy is completely legal, but it must be handled with care. Zero or negative profits raise red flags with the Chinese tax authority, so always document the rationale behind pricing adjustments.

Method 2: Local Operating Expenses

Another effective approach is allocating part of your operational expenses locally in China. This reduces accumulated profits while maintaining compliance and supporting your domestic operations.

Typical local expenses include:

• Office rent, salaries, and contractor fees

• Marketing, advertising, and software subscriptions

• Logistics, warehousing, and fulfillment costs

China’s domestic service economy is robust, offering a wide range of service providers that can support international business operations. By moving some expenses into China, your company can reduce profits on paper while legitimately expanding operations.

Compliance requirements:

• Expenses must reflect actual services or operations.

• Keep all supporting documents: pay slips, invoices, receipts, and payment confirmations.

• Avoid inflated payments to related parties or phantom service providers; this constitutes money laundering.

Sub-method: Business Development Investments:

If your Chinese company is part of a larger group, another strategy is to purchase assets domestically, such as:

• Equipment or machinery

• Vehicles

• Technology and software

Capitalizing these assets on your Chinese balance sheet aligns with operational growth while legally reducing taxable profits.

Method 3: Intercompany Loans & Offsets

When profits exceed what can be managed through supplier payments and local expenses, intercompany loans and offsets become viable. This method allows entities within a corporate group to swap currencies efficiently, maintaining balance sheets and liquidity.

Here’s the principle: your Chinese entity lends CNY to a partner entity, while the foreign entity lends USD back to your Chinese company. The resulting debts offset each other under a structured agreement.

Critical compliance points:

• Every loan must have a clear business purpose; mirroring transactions without justification is illegal.

• Interest must be applied to each loan.

• Complete documentation is mandatory, including agreements, repayment schedules, and supporting financial records.

• Some transactions may require registration with Chinese authorities.

This method is highly effective for large-scale operations but carries higher scrutiny from banks, foreign exchange offices, and tax authorities. Proper execution with experienced advisors is essential.

Method 4: Dividend Distribution

Distributing dividends is the most straightforward and fully legal method to move profits abroad. While it may not be the cheapest option due to withholding taxes, it offers clarity and full regulatory compliance.

Steps:

1. Pay corporate income taxes in China.

2. Prepare audit reports and filings for approval.

3. Deduct withholding tax (usually 10%, though tax treaties may reduce this).

4. Transfer the remaining profits abroad.

This approach is transparent, predictable, and universally accepted as a safe way to transfer profits. -------------------------------------------------------------------------------------------------------------------------------

Section 2: BLACK METHODS - Illegal Practices to Avoid

While there are many legitimate ways to transfer profits from China, some methods are explicitly illegal and can carry severe consequences. Understanding these practices is critical, not to use them, but to recognize and stay clear of them. Many foreign entrepreneurs fall into traps simply because these methods are widespread or presented as shortcuts.

1. Crypto Channels

Using cryptocurrency to move profits is not a viable option in China.

• Corporate accounts cannot legally convert RMB into stable coins or other cryptocurrencies.

• Domestic and international crypto exchanges will not onboard Chinese companies, meaning any attempt to use crypto for corporate transfers is immediately non-compliant.

• Even if you manage a single transaction, authorities monitor these channels closely. Penalties can include fines, frozen assets, or legal action.

The bottom line: forget crypto for corporate profit transfers in China. While tempting for speed or cost, it is strictly illegal and heavily policed.

2. Fake Invoices (虚开发票)

Another common illegal approach involves fabricating invoices to justify transferring funds.

Here’s how some entrepreneurs attempt it:

• Directors pay for personal or unrelated expenses using their accounts.

• They then create or acquire local Chinese invoices (发票) to reimburse themselves from the company account.

• The reimbursed money is then transferred abroad.

While reimbursing real expenses with genuine invoices is legal, creating fake invoices constitutes tax evasion and money laundering.

Chinese authorities now rely on big data and AI algorithms to detect unusual patterns in company spending. Even minor discrepancies in invoice amounts, supplier details, or expense frequency can trigger audits.

Risks:

• Fines and repayment of evaded taxes

• Long-term business restrictions

• Personal legal liability for company directors

The takeaway: Don’t attempt this method. The perceived cost-saving is minimal compared to the potential consequences.

3. Underground Banking (地下钱庄)

Underground banking operations offer a way to move cash out of China at a lower cost, making them tempting to some entrepreneurs.

Here’s how they typically work:

• You pay a local agent in China for “services.”

• They deliver cash abroad for a small fee.

• The transactions may bypass official banking channels, appearing faster and cheaper than legal transfers.

While these networks are powerful and historically widespread, they are illegal. Authorities are now cracking down aggressively, using advanced analytics to trace unusual capital flows.

Potential consequences:

• Loss of transferred funds

• Fines and tax liabilities

• Long-term legal issues, including imprisonment

The lesson: No shortcut is worth the risk. Stick to fully legal methods to protect your business and personal safety.

4. Trade-Based Money Laundering (TBML)

TBML is the most complex and common illegal method, but also the most dangerous. It involves manipulating trade transactions to move value across borders without triggering official reporting.

Common TBML schemes:

• Multi-invoicing: issuing multiple invoices for the same shipment

• Phantom shipments: invoicing goods that were never delivered

• Misclassification: falsely describing products to adjust value

• Shell companies: creating fake entities to disguise transactions

• Over- or under-invoicing: adjusting invoice values to transfer money covertly

Even seemingly small manipulations can be flagged by authorities. TBML works because it hides profit movement within legitimate trade flows. A Hong Kong supplier might sell goods to a Chinese entity normally, but if instructed to over-invoice and return the excess as cash, both parties are engaging in illegal TBML.

Detection and risk:

• Value discrepancies between invoices and actual goods or services are red flags

• Governments worldwide, including China, monitor these activities closely

• Violations can lead to criminal prosecution, asset seizure, and reputational damage

Critical advice: If an invoice or shipment doesn’t reflect real value, it is highly likely to be TBML. Avoid these schemes entirely.

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Final Takeaways:

Successfully transferring profits from China requires understanding legal frameworks, maintaining meticulous documentation, and using the right strategies.

Summary of White methods:

• Pay your suppliers now and defer payments from your foreign company.

• Move part of your operational expenses into China and pay locally.

• Structure legally and offset loans if your amounts are big.

• Or just distribute as dividends normally after paying taxes.

Summary of Black Methods

• Don't look for crypto channels - there is no legal way in China.

• Don't fake invoices - it's not worth the risk.

• Avoid underground banking.

• Understand what Trade-Based Money Laundering is, and make sure to stay away from it.

  
  

Understanding these methods is just as important as knowing the legal options. Avoiding them protects your business, assets, and personal liability, while ensuring your profit transfers remain fully compliant with Chinese regulations.

Compliance might seem complicated, but with the right planning and frameworks, it is entirely manageable. Proper execution not only safeguards your profits but also ensures long-term operational stability.

Next steps:

• Audit your Chinese operations.

• Apply the outlined legal methods systematically.

• Document every transaction meticulously.

By following these steps, your business can transfer profits from China legally, efficiently, and safely.