On February 20, 2010, China’s State Administration of Taxation (the "SAT") issued a Notice On Interim Measures For Tax Administration Of Representative Offices Of Foreign Enterprises (Guoshuifa [2010] No. 18, also referred to as "Circular 18"). Circular 18 states measures governing enterprise income tax (EIT), business tax, and value added tax (VAT) on representative offices of foreign enterprises (including those in Hong Kong, Macau and Taiwan). It takes effect retroactively as of January 1, 2010.Continue Reading China Issues New Tax Rules For Representative Offices Of Foreign Enterprises

On January 26, 2010, the State Administration of Tax (the "SAT") issued another Notice on Issues Concerning Implementing Royalty Clauses in Tax Treaties (Guishuifa [2010] 46, also referred to as "Circular 46"), further clarifying treaty treatment for technical know-how.Continue Reading China’s State Administration Of Tax Clarifies Treaty Treatment for Technical Know-How

On October 27, 2009, the Chinese State Administration of Taxation (“SAT”) issued a Notice, "How to Understand and Determine the ‘Beneficial Owner’ in Tax Agreements" (Circular No. 601, hereinafter referred as to the “Notice”). This Notice clarifies the definition of beneficial ownership for purposes of avoiding double-taxation and appropriately reducing tax burdens.Continue Reading China Clarifies Concept of “Beneficial Owner” in Tax Agreements

In October, 2009, two regulations were issued regarding value added tax (VAT) treatment in China. One regulation clarifies the value added tax (VAT) treatment of certain asset reorganizations between publicly traded companies (PTC) and their holding companies. The other exempts foreign-owned research and development (R&D) centers from taxes on imports of listed equipment and grants foreign and Chinese-owned R&D centers full VAT refunds on purchases of certain domestically made equipment.Continue Reading Changes to China’s “Value Added Tax” as of October 2009

In the beginning of 2009, the Chinese government set a target for annual tax growth of 8.2%. Due to the financial crisis, tax revenue has dropped 10.3% in the first quarter and 6% in the first half of the year compared with the same periods of last year. Therefore, China’s State Administration of Taxation ("SAT") has started to put more emphasis on tax inspection. Tax inspection is a regular function for the SAT, and a common practice internationally. But now China is expanding its scope.Continue Reading Multinational Companies Could Face Stricter Transfer Pricing Investigation By Chinese Tax Authorities

China’s State Administration of Taxation (“SAT”) issued a Notice on the Issues concerning the Application of Royalty Clauses in Tax Treaties (Circular No. 507, hereinafter referred to as the “Circular”) on September 14, 2009. The Circular clarifies the definition and scope of royalty clause involved in tax treaties to avoid double taxation and to prevent fiscal evasion with respect to taxes on income. It will be effective on October 1, 2009.Continue Reading China Crystallizes Royalty Clause of Tax Treaty

On August 25, 2009, China’s State Administration of Taxation (SAT) issued Administrative Rules on Nonresident Enjoying Tax Treaty Treatment (Guoshuifa 2009 No.14) ("The Rules"). The Rules provide detailed guidance for nonresidents seeking concessions (except for international traffic) provided in applicable tax treaties. The Rules will take effect on Oct 1, 2009.Continue Reading China Clarifies Nonresidents’ Eligibility For Treaty Tax Benefits

On March, 27, 2009, China’s Ministry of Finance (“MOF”), State Administration of Taxation (“SAT”) and General Administration of Customs jointly issued Notice of Some Issues related to Taxation Policies on Supporting the Development of Cultural Enterprises (the "Notice"). The Notice extends a series of tax benefits for cultural and media enterprises through December 31, 2013.Continue Reading Extended Tax Benefits for Cultural and Media Enterprises

On April 30, 2009 the PRC Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued Notice of Some Issues Associated with Income Tax Treatment of Enterprise Restructuring (Cai Shui [2009] No. 59) (“Notice 59”) relating to China’s tax treatment of certain corporate restructuring transactions. The rules introduced in Notice 59 have retroactive effect to January 1, 2008.Continue Reading Taxation of Corporate Restructuring (II)

New tax rules relating to the tax treatment of certain corporate restructuring transactions are expected to be finalized soon by the PRC Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”).

Under China’s pre-2008 foreign enterprise income tax (“FEIT”) regime, the SAT issued guidance on the tax treatment of corporate restructuring transactions, including Guo Shui Fa [1997]. No 71 (“Circular 71”) and Guo Shui Han Fa [1997].No 207 (“Notice 207”). Circular 71 provided detailed guidelines on the tax treatment of corporate restructuring transactions, including mergers, spin-offs, asset transfers and share restructurings. Notice 207 confirmed that a foreign investor could transfer its equity interest in a Chinese enterprise to a 100% related enterprise at cost, provided a commercial-purpose test could be satisfied. The guidance provided in Circular 71 and Notice 207 was interpreted by many foreign investors as indicating preferential tax policies under the FEIT regime.Continue Reading Taxation on Corporate Restructuring(I)