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Understanding Non-resident Enterprise Taxation in China

By EU SME Centre | Guidelines      03.07.2017     Tags: Other

 
 

Tax resident enterprises and non-resident enterprises are concepts under the Corporate Income Tax ("CIT") Law in China.  According to the CIT Law, tax resident enterprises are enterprises lawfully incorporated in China, or lawfully incorporated pursuant to the laws of a foreign country (region) but where actual management functions are conducted in China. A tax resident enterprise is liable to pay CIT on the global income basis. However, an enterprise will be considered as a tax non-resident enterprise in China, which is only liable to pay CIT on the incomes generated from the territory of China, when meets the following three requirements:

  • The enterprise is incorporated under foreign law or the law of another tax region;
  • Its actual management is located abroad; 
  • It either has an establishment[1] in mainland China or has generated revenue from Chinese sources without having an establishment in China.

Under most circumstances foreign enterprises, including EU SMEs, are categorised as tax non-resident enterprises when they have establishment in mainland China or has revenue generated from China. We hope this guideline helps EU SMEs understand their taxation liability in China as non-resident enterprises.

Therefore, understanding the taxation regime for non-resident enterprises in China is crucial. With the help of practical Case Studies, this guideline provides a clear picture of the requirements non-resident enterprises must follow to be fully compliant with Chinese regulations. In particular, the content of this guideline is structured as follows:

Key Contents

Major Types of Cross-border Income          

Non-resident Enterprises and Related Income Types          

  • Tax Resident Enterprises Vs Non-resident Enterprises      
  • Active Income (business profit) Vs Passive Income         
  • Treaty Benefits Vs Default Domestic Tax Treatment Under the CIT Law in China           

Permanent Establishment ("PE") and Service Income

  • Purpose and Characters of a PE    
  • Major Types of PE and Associated Tax Consequence       
  • Fixed Place PE      
  • Construction PE    
  • Service PE
  • Agency PE

Passive Incomes         

  • Dividend   
  • Interest      
  • Royalty     
  • Rental       
  • Capital Gain          

Administration on Tax Treaty Benefits        

  • Beneficial Owner  
  • Tax Treaty Benefit Application Formalities           

Tax Clearance Formalities and Tax Withholding    

  • Tax Clearance Requirement from Foreign Exchange Control Perspective 
  • Tax Withholding Obligation on China Customer   
  • Contract Registration        
  • Tax Assessment    
  • Deemed Profit Rate          

Anti-avoidance - Cross-border Transactions with Affiliate Companies      

  • Transfer Pricing    
  • General Anti-avoidance Rule ("GAAR")   
  • BEPS        
  • What is BEPS        
  • Intra-group Royalty and Service Fee
  • BEPS Development         
 

About the Authors

Rock graduated from Law School of Peking University, obtained bachelor and master degree of law. He started his professional career in PwC Beijing office since 2002 and later served in Zhonghui Certified Tax Agents and Zhongrui Yuehua Tax Advisory Co., Ltd.. 

Rock is a member of China Institute of Certified Public Accountants (CICPA). He also obtained the qualification of China Nationwide Lawyer and the Chartered Financial Analyst (CFA). In 2013, he was elected as one of the leading talents of State Administration of Taxation (SAT).

In his professional life, Rock has gained extensive knowledge and experiences in China business and tax advisory services for clients in various industries, including securities company, car financing company, advertising company, energy company, real estate company, IT company, etc. He has been providing China business and tax consulting services in relation regarding cross-border investment, tax risk assessment, restructuring, M&A, tax planning, tax compliance, outsourcing services and other professional service areas in China. In particular , he is a tax advisor with strategic insights on double tax treaties, non-resident administration, international tax policies.

Contact

If you need any assistance in purchasing the guideline or have any questions (e.g. make the payment in RMB or pay via bank transfer), please send us an email at info@eusmecentre.org.cn;如果您希望以人民币支付或通过银行转账付款,请发邮件至info@eusmecentre.org.cn.

 


[1]The term "establishment" here is the concept in the domestic law.  In the context of double tax treaties, the term "permanent establishment" is generally adopted.  There is no major difference between the meaning of the two terms but the term "permanent establishment" is more emphasizing the duration of the establishment.

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