China Tightens Double Tax Treaty Reporting

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Sept. 14 – The State Administration of Tax (SAT) has issued Circular 124 that further regulates tax administration for non-residents availing of the benefits provided by double tax treaty arrangements on their income in China.

Foreign executives based in China for limited periods over a 12 month time frame currently may not have to declare taxable income in China if their stay is less than 183 or 90 days depending on their nationality.

Circular 124 provides filing requirements to support such claims and have them pre-approved. The circular seems aimed at offshore companies in jurisdictions that have tax treaties with China and shielding individual income tax and to the tax treaty domicile.

Filings requiring pre-approval with the SAT:
1) Dividends derived from the same equity investment in the same enterprise
2) Interest derived from the same debt and due from the same debtor
3) Royalties derived from granting the same right to the same individual or enterprise

Treaty benefits and articles now requiring registration:
1) Permanent establishment and business profits
2) Independent individual services
3) Dependent individual services
4) Other articles, including dividends, interest, royalties and capital gains

Documentation requirements to be presented to your local tax bureau as part of the pre-qualification process:
1) Applicable contracts, agreements and payment receipts
2) Tax registration certificate from the domicile in question, dated within the past 12 months
3) Similar details for any other involved domiciles
4) Shareholders residency status

Documentation needs to be filed with the local responsible tax bureau for a pre-approval process lasting up to 40 days, with a further 10 days if additional investigation be required. If no answer is provided by this time, the application shall be deemed as having been approved.

However, should the applicant be asked to submit further documentation, this shall not be considered as part of the pre-approval time.

Circular 124 also permits the random investigation of cases. The circular tightens considerably the application requirements and procedures for applying for tax treaty status and demands more disclosure.

It should be noted that these requirements now also allow the SAT to look into movements of business into individuals or companies special vehicles or offshore company transactions. It is recommended to practice caution and seek professional advice when completing such documentation for the local tax authorities.

For further assistance email Dezan Shira & Associates’ National Tax Partner, Sabrina Zhang at

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