Sending profits from Thailand back to China: which taxes apply

01Three common routes, with different cost structures

Whether the money can be taken back out is a question almost every Chinese-invested owner asks. It can — but the same amount travelling by different routes can arrive noticeably smaller, and once you are down the wrong route there is little room to fix it.

• Dividends. The most direct route: the company distributes profit to shareholders after tax, and withholding tax has to be considered when the money is remitted. Clean and easy to explain, but the timing depends on profit, on the audit and on the shareholders' meeting — you cannot simply distribute whenever you want to.
• Service fees. Management fees, technical service fees and the like paid to the Chinese parent. This works only where the service genuinely took place and the pricing has a basis, and it brings two separate obligations to handle properly: withholding tax and reverse-charge VAT.
• Royalties. Payment for a trademark or a technology licence, which carries withholding tax. It rests on a real licence relationship and a contract, and where the conditions are met a treaty rate may apply.

In practice these are usually combined rather than chosen between. How you combine them depends on your profit structure, how functions are split within the group, and what each route means for tax on both sides.

02If you have a tax exemption, the dividend route needs one more layer of checking

For a company enjoying corporate income tax exemption, profit earned during the exemption period is not treated the same way as an ordinary company's profit when it is distributed, and the treatment also depends on when the distribution is made. That feeds straight into investment projections — the same profit distributed at a different time, or under a different heading, may not arrive the same.

The specific rules and time limits are governed by the official rules in force and by the terms of your own promotion certificate. Do not simply do what an ordinary company would do. This is the box that companies holding a tax exemption most often fail to look in when they plan profit repatriation.

03Treaty relief is not given by default

Where the conditions are met, a treaty can reduce the withholding burden on some payments. But it has to be claimed: a certificate of tax residence and the other supporting documents have to be in hand, and the relief has to be applied correctly in the return. Whether that step was taken shows up directly in the amount that arrives.

Prepare the documents early. A certificate of residence takes time to obtain. Ask for it only just before payment and you will often miss the filing period — so tax is withheld at the ordinary rate first, and recovering it afterwards is a much longer process.

04The two most common mistakes

Two mistakes come up again and again.

• Labelling payments "service fees" loosely. A related-party payment with no real service and no delivery trail behind it will at best be adjusted and taxed, and at worst be treated as an improper arrangement. You should be able to answer: who did the work, what they did, what benefit the Thai company received, whether anything is being charged twice, where the allocation basis comes from, and whether the contract matches what actually happened.
• Paying first and dealing with the paperwork afterwards. The tax obligation on a cross-border payment arises at the moment of payment, and there is limited room to repair it later. It also triggers two separate obligations — withholding tax and reverse-charge VAT — and filing one while missing the other is a frequent problem. See what a Thai company must withhold and file when it pays a service fee abroad.

05The right order

Settle the route, then put the contracts and the pricing in place, then file and pay. Route design is a structuring question, and the earlier it is settled the more room you have. Going back over it once the money is already sitting in the account — or already paid out — leaves you with far fewer options.

Which route fits your situation, whether the treaty can be applied, and how distributions during an exemption period should be arranged all have to be worked through item by item against your profit structure, how functions are split within the group, the terms of your promotion certificate and the tax treatment on both sides. We suggest running that exercise once before your first profitable year. What the tax compliance engagement covers.