Business

SAT Clarifies Beneficial Ownership of Dividends under Tax Treaties

May 22 – China’s State Administration of Taxation (SAT) recently released the “Opinion on Implementing the Dividends Provision under the Tax Arrangement between Mainland China and Hong Kong in Cases involving Beneficial Ownership (Shuizonghan [2013] No. 165, hereinafter referred to as ‘Opinion 165′)” on April 12, in response to inquiries made by the tax bureaus of various provinces and cities throughout China. The inquiries concern cases involving several Hong Kong companies applying for beneficial ownership status under the dividends provision of the Double Taxation Avoidance Agreement (DTA) between Mainland China and Hong Kong. Opinion 165 will apply nationwide to similar provisions in China’s other tax treaties from the date of promulgation.

To enjoy reduced withholding rates on dividends, interest and royalties under China’s tax treaties with other countries, the nonresident recipient must be considered a “beneficial owner” of the income. Opinion 165 clarifies the “unfavorable factors” in determining beneficial ownership as addressed in two previously issued regulations:

The “Notice Concerning the Meaning and Determination of ‘Beneficial Owner’ in Tax Treaties” (Guoshuihan [2009] No. 601, hereinafter referred to as “Circular 601”), effective October, 2009; and
The “Circular Concerning the Determination of ‘Beneficial Owner’ in Tax Treaties” (SAT Announcement [2012] No. 30, hereinafter referred to as “Announcement 30”), effective June, 2012. Continue reading →

China Allows Private Equity Investment in Insurance Companies

May 20 – With the view to encourage private investment in the insurance industry, China’s Insurance Regulatory Commission (CIRC) released the “Circular on Relevant Issues regarding the Investment and Shareholding of Limited Partnership Equity Investment Enterprises in Insurance Companies (Baojianfa [2013] No. 36, hereinafter referred to as the ‘Circular’)” on April 24, which allows limited partnership equity investment enterprises to invest in the country’s insurance companies.

The Circular sets out the requirements for a limited partnership equity investment enterprise to invest in an insurance company and outlines the application materials required by the CIRC. The Circular applies to all Chinese insurance companies in which the shareholding of all foreign investors is less than 25 percent, as well as domestic and foreign-invested limited partnership equity investment enterprises. Detailed information can be found below. Continue reading →

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Tax Implications of a Service Permanent Establishment

By Eunice Ku and Shirley Zhang

May 20 – With an increasing number of foreign enterprises starting to conduct business in China, tax liabilities resulting from business activities within the country are fast becoming an issue of key concern. If an establishment or venue of a non-resident enterprise constitutes a service permanent establishment (PE) in China, it will be subject to 25 percent CIT on all of its China-sourced income, as well as non-China sourced income that has an actual connection to the PE. We outline what constitutes a service permanent establishment in the current issue of China Briefing Magazine “Understanding Permanent Establishments in China,” which is available as a complimentary download on the Asia Briefing Bookstore through the end of the month. Continue reading →

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India Poised to Be China’s New Engine for Growth

Regional demographics mean China must cozy up to India or face consequences

Op-Ed Commentary: Chris Devonshire-Ellis

May 17 – Quite possibly the most senseless foreign policy position China has taken over the years has been its stance towards Japan. With diplomacy concentrating on World War II issues that most of the world has now moved on from, sovereignty disputes over close to worthless islands, and a rise of Chinese nationalism fueled by state propaganda, China has succeeded in alienating what remains one of the world’s largest economic powers, as well as a major historic foreign investor in China and a close regional neighbor. While Japanese investment will remain in China, the fallout from the Chinese government-fueled drop off in Japanese sales to China has made the Japanese business community now feel unwelcome in the country. Consequently, future Japanese investment is looking for more sustainable, and friendly, investment relations across the rest of Asia. Continue reading →

Posted in Business, Economy and Politics, FDI and Foreign Trade, Markets | 3 Comments

Update: Catalogue of Priority Industries for Foreign Investment in Central and Western China

May 16 – China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOC) jointly released the “Catalogue of Priority Industries for Foreign Investment in Central and Western China (hereinafter referred to as the ‘Catalogue’)” on May 14, which is scheduled to take effect on June 10, 2013. The Catalogue replaces its predecessor issued in 2008, and adds 173 categories to the original list.

According to the “Provisions on Guiding Foreign Investment,” foreign-invested projects included in the Catalogue are entitled to the preferential policies granted for the foreign-invested projects under the encouraged category. The Catalogue is organized by province, covering 22 out of the 31 provincial-level administrative regions in Mainland China. Selected industries for each provincial-level region can be found below. Continue reading →

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China’s Provincial GDP Figures in 2012

Three-fourths of China’s provinces reported GDP figures over RMB1 trillion (US$163 billion) in 2012

By Yao Lu

May 16 – According to preliminary data released by China’s National Bureau of Statistics, the country’s economy expanded 7.8 percent in 2012 amid the sluggish global economy, reaching RMB51.9 trillion (US$8.45 trillion). The growth rate, although the slowest since 1999, still beats the government’s 7.5 percent growth target. In the fourth quarter of 2012, the country’s economic growth reached 7.9 percent, putting an end to seven consecutive quarters of slowdown, up from 7.4 percent in the third quarter and 7.6 percent in the second. Continue reading →

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Triggering Permanent Establishment Status in China

By Eunice Ku and Shirley Zhang

Understanding-Permanent-Establishments-in-China May 15 – For foreigners doing business in China, tax is always a key concern. As a foreign business or individual, income derived from China may be subject to taxes in both your home country and China, which could substantially increase your tax burden.

Under China’s Corporate Income Tax (CIT) Law, a non-resident enterprise (i.e., an enterprise organized outside of China and whose effective management is not within China) without an establishment or venue in China is subject to CIT at a withholding rate of 10 percent on their China-sourced income, which includes:

Income from property transfers;
Income from equity investment such as dividends and bonuses;
Income derived from interests, rentals and royalties;
Income derived from donations; and
Any other income. Continue reading →

Posted in Business, FDI and Foreign Trade, Featured, Finance, Tax and Accounting, Legal and Regulatory | 1 Comment

China Briefing Releases ‘The China Tax Guide: Tax, Accounting & Audit (Sixth Edition)’

May 13 – China Briefing, in cooperation with its parent company Dezan Shira & Associates, has just released the sixth edition of The China Tax Guide: Tax, Accounting & Audit. Taxation permeates business transactions in China, and a strong understanding of tax liabilities enables foreign investors to maximize the tax efficiency of their foreign investment while ensuring full compliance with all tax laws and regulations. This guide overviews taxes for businesses and individuals, and discusses accounting and audit in the China business context.

This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China operations.

Continue reading →