This is the third in a series of posts about getting paid by a Chinese company. In Have the Rules Changed? I looked briefly at the underlying framework of rules that apply to foreign conversions and remittances. Is there a PRC Tax Problem? dealt with some of the tax-related issues that cause payment delays or defaults. In this third post I look at some basic due diligence that can identify or avoid defaults or delays in money transfers out of China.
If you don’t get paid, ask yourself these questions before you rush to blame the Chinese company:
1. Do you have any idea what taxes should have been paid by the Chinese company and what taxes should be deducted from the remittance itself?
2. Was your contract exempt from the kind of prior registrations required by the tax authorities?
3. Do you even have an enforceable contract against the Chinese company in China?
4. Has an independent person gone down to the Chinese company’s bank branch to confirm what their particular requirements and concerns are?
5. Did you withhold any deliverables until you received all or substantially all of the money out of China?
6. Did you ask the Chinese company to provide examples of previous successful foreign remittances?
7. Does the business license of the Chinese company allow for foreign trade and thereby indicate that foreign remittances would not be unusual in the ordinary course of business?
8. If you’re dealing with a State Owned Entity (SOE), or a very large company of any kind, did you understand all of the internal approvals that company would require before a payment could be authorized and did you appreciate how long this might take?
If the answer to any one of these questions is “no”, don’t blame the Chinese company.