Reduce your China investment and take home capital... Is it possible?

July 24, 2020

The world economy is going coronas... Your company shivers and sweats. Feverishly you reach for your bank statement… Are you able to pay next month's bills? Can you even survive? 

In these times of great uncertainty, the “sliding puzzle” of moving cash around between interrelated companies and subsidiaries in order to secure liquidity where it is needed has become more important than ever. We all know that after-tax profits, loan repayment, and inter-company settlement related to trade of goods and services can flow without much complication - even in and out of China. But what about investment capital registered in China? Can you write it down and transfer cash back to the mother company? Let me share with you a story from real life as it played out, beginning with a conversation during a board meeting at which I was present as a director.

Mission impossible... or? 

Svend felt a tinge of frustration as he thought of his company’s excess money sitting in China, while he had large expenses to pay in his home country of Denmark. He pushed these thoughts aside and tried to congratulate himself on a good year. As he cheered with his board of directors in celebration, he heard something about modifying a company’s registered capital. He leaned in closer… could he have heard correctly? 

A Danish businessman, Svend established a wholly owned subsidiary in China back in the mid 2000s. At the time, he filed a substantial amount of registered capital to invest in machines and building refurbishment. Since its establishment, Svend’s company had written off the initial investment using Chinese depreciation rules. As a result, the money originally invested in machines had been earned back and converted to cash which was kept in the company as working capital. For many years, Svend didn’t mind having cash held up in China because his busines... Read More