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In this issue:

• Dealing with Initial Setup Costs
• Payment Arrangements among Headquarters, WFOE and Clients in China
• Contemporaneous Transfer Pricing Documentation Requirements in China

In this issue, we discuss cross-border inter-company transactions (pre- and post-establishment) and the documentation you will need to submit to keep up with the increasingly powerful transfer pricing regulation implementation in China. The potential complexity involved in these transactions means that they are sources of confusion to many China investors. We provide some pointers to help investors navigate these complex issues by first addressing the payment arrangements among HQs, WFOEs and clients in China, as well as each arrangement’s tax implications. We include the specific steps a WFOE in China has to undergo in order to remit funds between its headquarters and clients, and alert investors as to when transfer pricing issues and duplicate taxation issues are triggered.

Next, we address initial setup cost payments. The rules and regulations relating to foreign currency and incorporation in China leave no perfect solution. We discuss the methods of dealing with these payments, along with the feasibility and risks/limitations of each method. Finally, we look at China’s transfer pricing regulations and the documentation requirements for investors to prepare, submit and retain in order to support the arm’s length nature of their related party transactions.