Tag Archives: Notice 698

NEW RULES FOR OFFSHORE TRANSFERS – 698 REPEALED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

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