Category Archives: Tax

CROSS-BORDER SECONDMENTS – PRC TAX/EMPLOYMENT
April-May China Bulletin

State Administration for Taxation (SAT) issued Announcement 19, [2013] No. 19, with effect from June 1, 2013, providing guidance on seconding expatriates to China.  Many U.S. companies send expatriate employees to work in China on a temporary basis.  If considered employees of the U.S. company while rendering services in China for more than six months in a year, a service permanent establishment (PE) of the U.S. company will normally be created retroactively in China under relevant double-taxation agreements.  A U.S. company with a PE must file Enterprise Income Tax (EIT) returns and pay EIT on actual or deemed income in China. Continue reading

CHINA-NETHERLANDS – NEW TAX TREATY
April-May China Bulletin

The Netherlands is regarded as one of the preferred holding company jurisdictions for foreign investment into China and for Chinese investments moving abroad.  In the near future, a new tax convention signed with China on Mary 31, 2013, will provide additional benefits, including 5% withholding on dividends and 6% withholding on certain types of royalties that meet a “main purpose” test. Continue reading

OFFSHORE INDIRECT TRANSFERS & NOTICE 698
March China Bulletin

A U.S. investor with no residence in China that sells shares of a Cayman Islands company (which in turn holds shares in a Chinese subsidiary) may be subject to Chinese Enterprise Income Tax (EIT) of 10% on its gain.  Under Notice 698 (Guo Shui Han [ 2009] No. 698), the Cayman Islands company can be disregarded or looked through if its organizational form is considered abusive and without a reasonable commercial purpose.  If it is disregarded, EIT will be imposed on the U.S. seller as if the offshore transaction were a sale of the Chinese subsidiary’s shares. Continue reading

PILOT VAT PROGRAM CONTINUES
March China Bulletin

The pilot Value-Added Tax (VAT) program, first implemented in Shanghai (see Jan-Feb 2012 China Bulletin), is now a proven success.  It was extended to ten other cities and provinces in 2012 (see July 2012 China Bulletin) that together account for over half of China’s economic output and tax revenue.  General VAT tax-payers in the pilot areas have experienced a lower VAT burden on covered services.  Unlike the Business Tax, which formerly applied to such services, input VAT is not a sunk cost for such taxpayers because it can be offset against output VAT. Continue reading

BENEFICIAL OWNER STATUS UPDATE
March China Bulletin

The State Administration of Taxation (SAT) issued Notice 601 (Guo Shui Han [2009] No. 601) listing factors that the tax authorities should consider in determining whether an offshore party (not resident in China for tax purposes) receiving dividends, interest, royalties and other passive income from China qualifies as the beneficial owner of that income under China’s tax treaties.  In June, 2012, SAT issued Announcement 30 (Guo Shui Gonggao [2012] No. 30) directing local tax authorities 1) not to deny beneficial owner status on the basis of one unfavorable Notice 601 factor or grant such status because no intent to evade taxes is expressly set out in the taxpayer’s documentation, 2) Continue reading