Category Archives: Tax

TAIWAN-MAINLAND CHINA DOUBLE TAX AGREEMENT
Jul. to Sep. 2015

The chairmen of the cross-straits associations from Taiwan and mainland China recently signed a double taxation agreement (the Agreement) that, when ratified, will accord certain preferential treatment to taxpayers from each jurisdiction receiving income from the other jurisdiction, including reduction of withholding on qualifying dividends to 5%, interest to 7%, royalties to 7% and capital gains to zero. Continue reading

PAYING EXPAT COMPENSATION OUTSIDE CHINA
Jul. to Sep. 2015

It’s a common situation.

Mr. Lin, a U.S. citizen and chief representative of ForCo’s representative office in Shanghai receives his salary from abroad. So does Mr. Schmidt, an entrepreneur, who has built a thriving business making laser products in China and selling them to the U.S. His Hong Kong sales company pays him a large salary. Ms. Zhou, an Australian citizen living in Beijing and working on contract for ForCo has her salary remitted to an account in Hong Kong. All three have resided in China for more than a year. Mr. Lin and Mr. Schmidt arrange for nominal salary payments in China, on which they pay Chinese individual income tax (“IIT”). Ms. Zhou does not report income for her contracting work or pay IIT on it in China. Continue reading

IIT ON INDIVIDUALS’ ASSET CONTRIBUTIONS TO EQUITY
Jul. to Sep. 2015

Through a series of notices, the State Administration of Taxation (SAT) has taken the position that an individual’s contribution of non-monetary assets in exchange for equity is subject to individual income tax (IIT) at the time of contribution to equity. Since the value of such assets may have substantially appreciated, SAT Announcement [2015] No. 20 permits taxpayers to amortize IIT on gains from the appreciation over five years. Continue reading

LOCAL INCENTIVES REVOKED
Mar. to Jun. 2015 China Bulletin

The State Council and Ministry of Finance took a decisive stroke by issuing the Notice Regarding Cleaning Up and Standardizing Preferential Policies in November 2014 (Notice 62), possibly ending a decades long tug-of-war over preferential incentives local governments use to attract investment.  Existing incentives were to be reported to the State Council and cleaned-up on a consolidated basis by March, 2015, provoking an outcry from companies such as Continue reading

WESTERN ENCOURAGED CATALOG UPDATE
Mar. to Jun. 2015 China Bulletin

The State Administration of Taxation (SAT) issued an announcement on March 10, 2015, (Notice 14) on enterprise income tax issues following from the Encouraged Foreign Investment Project Catalog for Central and Western China (Central & Western Catalog), as supplemented by the Catalog of Encouraged Industries in the Western Region, released by the National Development and Reform Commission and effective from October 1, 2014 Continue reading

NEW RULES FOR OFFSHORE TRANSFERS – 698 REPEALED
Dec. 2014 to Feb. 2015 China Bulletin

Stricter Provisions, More Detailed Guidance, Broader Scope:

Five years ago, Notice 698 came into effect.  It reached certain sales outside China by non-Chinese companies (e.g., Delaware) of interests in other non-Chinese companies (e.g., Cayman Islands or Hong Kong) that hold property in a subsidiary in China.  And it subjected capital gains realized from such sales (which would not otherwise be subject to Chinese income tax ) to tax as if the sale were a direct transfer of Chinese assets. Continue reading

VAT EXTENDED TO VALUE-ADDED TELECOMS
Feb. to June 2014 China Bulletin

Replacement of the Business Tax on service industries with the Value-Added Tax (VAT) continues apace (see SERVICE VAT EXPANDED, Aug.-Sept. China Bulletin), and the Ministry of Finance and State Administration of Taxation issued the Notice on Including the Telecommunications Industry in the VAT Pilot Program, Cai Shui [2014] No. 43 (Notice 43).  This notice extends an 11% VAT to basic telecoms (mainly voice communication and infrastructure services) and a 6% VAT to value-added telecoms (messaging services used in mobile phones, transmitting and apply electronic data and information), replacing a 3% Business Tax Rate. Continue reading

TAXING OFFSHORE HOLDING COMPANIES
Oct. 2013 to Jan. 2014 China Bulletin

In a recently reported case, the local bureau of the State Administration of Taxation denied a Cayman Islands seller’s application for exemption from Enterprise Income Tax (EIT) on capital gains from the sale of a Cayman Islands holding company listed on the Hong Kong stock exchange, and RMB 279 million was levied in income tax.  The tax was not levied under Notice 698, which reaches offshore holding companies that lack a reasonable business purpose.  Nor did Notice 601 apply, which denies treaty benefits to an offshore company deemed not to be the beneficial owner of income but only a conduit for its parent company.  Instead, the tax bureau found the transaction subject to PRC tax because the listed Cayman holding company was a PRC resident for tax purposes. Continue reading

SERVICE VAT EXPANDED / EXEMPTIONS IMPLEMENTED
August-September 2013 China Bulletin

The pilot VAT plan for international transportation and “modern services”, reported in the March 2013 and January-February 2012 China Bulletins, was expanded nationwide as of August 1, 2013.   On September 13, 2013, the State Administration of Taxation (SAT) issued Announcement 52, which clarifies the exemption for exported modern services and, it is hoped, will reduce the actual VAT cost imposed on cross-border technology transfers and other services.  Local tax authorities have sometimes not allowed the exemption that should apply to such services. Continue reading

E-COMMERCE TAX IN CHINA
April-May China Bulletin

A tax on e-commerce business, first considered in 2003, was recently raised by Jindong Zhang, chairman of the electric chain store, Suning, and is under consideration by several departments in the PRC government under the lead of the Ministry of Commerce.  China’s online shopping industry has overtaken Japan’s and is expected to exceed the U.S.’s to become the largest online retail market this year. Continue reading