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
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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 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 The State Administration of Taxation (SAT) issued Circular 18 in May clarifying the deductibility of equity incentive plans for PRC Enterprise Income Tax purposes. Circular 18 applies to listed companies that are resident in China for tax purposes, and certain non-listed companies. It does not specifically address equity incentives offered by foreign (non-Chinese) companies to employees of As discussed in the January-February China Bulletin, from January 1st of this year, a pilot program was launched in Shanghai to substitute value-added tax (VAT) for business tax on transportation services and “certain modern services”. This pilot program has recently been extended to ten additional cities and provinces including Beijing, Tianjin, Jiangsu, Zhejiang, Anhui, Fujian, Hubei, Although they are entitled to reduced withholding on dividends remitted abroad from China (e.g., 5% on qualifying dividends sent to Singapore), many companies that are not resident in China for tax purposes have found that the challenge of meeting local requirements to qualify as a beneficial owner under the relevant treaty outweigh the tax savings. A The State Administration of Foreign Exchange issued the Notice Regarding Administration of Domestic Individuals Participating in Employee Equity Incentive Plans of Offshore Listed Companies, Hui Fa [2012] No. 7, with effect from February 15th. This Notice requires domestic employers to record equity incentive plans that they offer to domestic individuals with the competent foreign exchange bureau. Changes Partnership interest tax, incentives in Western China, value-added (VAT) pilot program for Beijing delayed, and VAT compensation and zero-rated services regulations in Shanghai: 1) Limited partnerships have become increasingly popular as investment vehicles because of advantages such as flexibility, efficiency and taxation. Now, the State Administration of Taxation is considering imposing a higher profit tax rate In several notices, the State Administration of Taxation and other agencies have exempted complete or partial asset transfers on corporate reorganization from the Value-Added Tax, Business Tax and Deed Tax, provided that certain conditions are met. These conditions, including transfer of creditor and/or employee rights, differ for each tax exemption. Read more |
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