On 8 March 2023, China acceded to the Convention Abolishing the Requirement of Legalization for Foreign Public Documents (hereinafter referred to as the “Convention”). The Convention will come into effect in China on 7 November 2023.

The use of technology, trademarks or other rights of overseas companies by multinational enterprises in China will involve the payment of cross-border royalties. . Most enterprises will file tax declarations with Chinese tax authorities to withhold and pay corresponding taxes when paying royalties through non-trade transactions. However, it is very likely to overlook the customs implications involved, and therefore fail to declare the royalties related to the imported goods to the customs in a timely manner, leading to customs audits and ultimately administrative penalties. The issue of whether the royalties will be taxed by both customs and tax authorities, thereby triggering double taxation, has always been a concern for multinational companies in China. This article will introduce the customs implication on royalties and remind enterprises to pay attention to the customs obligations arising from cross-border payment of royalties

Note: The following article is the second article of the series discussion regarding “Listing and Financing of FIEs in China” 1. Financing and control Some foreign enterprises are concerned that their equity in the foreign invested enterprises established by them in China (“FIEs”), will be continuously diluted in the course of financing, potentially resulting in losing the control over the FIEs or even be sidelined from management. While these concerns may have some merit, they don't always hold true.