Many times over the years American clients of ours have asked us whether their buyers in China are telling the truth when they claim not to be able to pay the American company more than $50,000 in one year.  Our response has always been that we were dubious of such a claim because we have other clients who get paid millions of dollars each year by their China buyers, but if they want us to research this issue for them, we would be happy to do so, at our regular hourly rates.

We had never researched this issue….until now.

And even now, we did not exactly do the research ourselves and the research is confined to money from Chinese citizens, not companies.  We are involved in a case with a number of other law firms and in that case one of the Chinese parties said that they could not pay one of the law firms more than $50,000 this year.  As you might have guessed, when a law firm’s own money is at issue, the research gets done and the following is what the law firm found:

  • China controls inbound and outbound foreign exchange flows.  If a Chinese citizen needs to make an overseas payment it is required to purchase the foreign funds with RMB from a bank qualified to do foreign exchange business.  Most banks in China are qualified to do foreign exchange business.
  • When converting RMB to a foreign currency at a Forex Bank, the bank is required to review whether the outbound capital is for investment or for regular payment.  Outbound capital investment refers to overseas equity investment and is strictly restricted. Outbound regular payments are permitted, including those for overseas tours, training, relatives visitation, business negotiations, meetings, service, labor, etc.
  • Legal service fees paid to an American lawyer for the service rendered is deemed a regular payment item.  Chinese citizens can convert and remit freely up to USD $50,000 equivalent per year. Conversions exceeding the USD$50,000 quota is still possible, but the citizen cannot complete it at a bank counter freely; he or she must apply to the local State Administration of Foreign Exchange for written approval.  Chinese banks will not let the extra conversion go without seeing SAFE’s approval letter.
  • To secure approval to exceed the USD$50,000 limitation in yearly payments to an American attorney, the Chinese citizen needs to submit documents verifying the underlying transaction. The application documents mainly include: (1) an engagement letter/contract signed between the Chinese party and the American attorney; (2) notarization and legalization of the engagement letter/ contract; (3) tax return certificates of the US payee (theoretically the US attorney needs to pay Chinese withholding tax for the revenue gained from China); (4) a request for payment from the US attorney.

Well now we know.

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.