State Administration of Taxation

Corporate Income Tax Matters on Payments to Overseas Related Parties and how it will impact multinationals

The State Administration of Taxation released Announcement No. 16 on 18 March 2015. The new regulation sets out different criteria on non-deductibility of outbound payments, service fees and royalties to overseas related parties by Chinese companies.

China issues new measures for the General Anti-Avoidance Rules

The State Administration of Taxation issued on December 2, 2014 the Administrative Measures for the General Anti-Avoidance Rules (Trial Implementation) and the Measures became effective on February 1, 2015.  The Measures further clarify the scope of application and the procedures of GAAR. The GAAR represent procedures to fight against tax evasion, tax avoidance and abuse of trade treaties. Henceforth, the State Administration of Taxation (SAT) intends to carry out investigations on corporate transactions without commercial purpose and economic substance.

The State Administration of Taxation issues “Administrative Measures for Individual Income Tax on Equity Transfer”

SAT issued the Public Announcement No. 67, “Administrative Measures for Individual Income Tax on Capital Gains from Equity Transfer” that came into effect since January 1, 2015. This Announcement introduces new rules to strengthen the individual income tax on capital gains from equity transfer. Tax payers must pay the individual income tax on revenue derived from equity transfer based on the income from transfer of property. The tax rate is at 20%.

Main points:

China raises a resource tax on crude oil and natural gas

According to the Ministry of Finance (MOF) and the State Administration of Taxation (SAT), China will raise a resource tax on crude oil and natural gas, to take effect on 1st December, 2014.

Extending Tax Breaks for startups to boost jobs in China

The extension of tax break has been announced by the State Administration of Taxation together with the Chinese Ministry of Finance. Such measure is taken in order to increase employment in China due to graduates and unemployed people who struggle to find work. The previous expiration was until the end of December 2013 but has been prolonged till December 2016 also expanding the plan’s extent of range, including every sector.

CHINA REVAMPING INCENTIVES TO FOSTER SMALL PROFIT BUSINESSES

In China, small businesses hold the majority among the total number of enterprises in China. Considering the small businesses as one of the driving factors for the Chinese economy, the PRC government has decided to offer them some preferential income tax rates and VAT exemption which is subject to a certain qualifications as discussed in this newsletter. This is expected to ease off their tax burden to a certain extent allowing them to save more cost, thus, make more margin.

China eases control over overseas remittance

A further and encouraging step was taken by the State Administration of Taxation (SAT) jointly with the State Administration for Foreign Exchange (SAFE) to ease the process of dealing with overseas remittances. The new regulation was issued on July 09, 2013 and implemented and put into force on September 01, 2013.

GUIDANCE ON WHEN STAFF SECONDMENT CREATES TAXABLE PRESENCE IN CHINA

Along with the speedy development of China’s economy and globalization, the need for skilled resources in China is escalating. This has led to an increase in the mobility of human resources to China. Increasingly, multinational companies (“MNCs”) with set up in China are looking for talents within their existing work force from their operations around the world and dispatch them on temporary arrangements to China to assume key technical, management or other positions with the Chinese entity.

NATIONWIDE IMPLEMENTATION OF FOREX REFORMS UNDER SERVICE TRADE STARTING SEP 01, 2013

Recently, the State Administration of Foreign Exchange (“SAFE”) issued guidelines concerning foreign exchange administration under service trade and implementation regulations under circular 30 [Huifa 2013]. The new reforms will be implemented throughout China commencing 01 September, 2013.
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