SHANGHAI, April 24 – The central government lowered the stamp duty on stocks from 0.3 percent to 0.1 percent today in an effort to stabilize the market.

China also introduced two new rules to tighten securities management in a move to restore investor confidence in the beleaguered stock market.

“After the recent drops in share prices, the stock market has already been through sufficient correction, but it needs a trigger to set off a rebound,” said Yan Li, an analyst with Southwest securities. “The stamp tax cut is exactly that trigger,” she told Agence France-Presse. (more…)

Third updated edition of the best selling handbook

April 9 - The brand new, updated version of our popular China Tax Guide is now available with a complete overview and updates bringing it right up to the moment in dealing with China’s tax laws as they affect foreign investors. This is the third edition of the title and is priced just US$25 (RMB200) plus p&p. The six chapters break down as follows:

Chapter One
An introduction to tax in China
Tax planning as part of your investment strategy
China’s tax law and administration
Glossary of Chinese terminology

Chapter Two
China’s business taxes
Business tax
Value added tax
Obtaining export tax rebates
Consumption tax
State and local tax bureau vs. local government licensing authorities
Tax aspects of operating processing and assembly (LLJG) operations in South China
Special tax incentives in West China
Tax refunds upon reinvestment
Withholding tax
Other specialist and smaller applicable taxes (more…)

April 7 - China’s States Administration of Taxation recently clarified provisional corporate income tax (CIT) filing for branches of Chinese resident enterprises.

Guoshifa [2008] No. 28 applies to resident enterprises which maintain operating branches or establishments in multiple provinces. Headquarters and second-tier branches with business operations are required to file provisional monthly or quarterly CIT returns with their local tax bureaus.

Third-tier or lower branches whose provisional CIT payable is combined with that of the second-tier branches and second-tier or lower braches that are not VAT or business taxpayers and do not carry out business activities are not required to pay provisional CIT locally. In addition overseas branches and branches of resident enterprises qualified as small-scale enterprises with low profitability in the previous year are exempt from filing. (more…)

China developing quietly as worlds largest commodities trading center

Mar. 25 - Amidst the on-going rhetoric about China’s trade imbalances, a little understood, but significant revolution is underway – the massive emergence of China as the worlds largest commodities trading center.

Global commodities markets have seen prices of goods such as basic fuels, grains and metals increase dramatically over the past two years, however the emergence of China’s internal markets as a force to be reckoned with is going to have a significant impact on industries from foreign banking to commodities trading to global suppliers and processors.

Futures Exchanges booming as China seeks pricing stability
Chinese domestic trading is on the increase as long positioning internal trade barriers are being brought down – the days of provincial governments levying taxes on goods transiting their borders from other provinces are finally drawing to a close. Oil, steel and aluminum from the power belts and heavy industrialized northeast are driving production of grains, coffee, tea, tobacco and sugar from the south, which in turn sell these products on, in the form of cigarettes and other processed foods to the wealthy stretch of China’s east coast and elsewhere within across the nation. (more…)

One week left to file IIT returns on income in China

Mar. 24 – Pictured at right is a tax paid form for individual income tax filings for 2007. These are sent to the place of work or residential address of expatriate individuals who have been working in China and who are subject to declaration of IIT on their salaries for 2007.

Expatriates must complete a self declaration form and submit it by the end of this month to their local tax bureau – even if they have paid all monthly IIT rates due. The China tax bureau has the right to levy fines if the self reporting documents we reported earlier in the month have not been filed.

If you have not filed an individual income tax self declaration report you must do so before the end of this week. If you have, you will either have, or will receive, a form such as that shown.

Employees or individuals in China who are unsure of their status or who require assistance with the procedures are advised to contact the Dezan Shira & Associates tax hotline at tax@dezshira.com urgently to remit filings. Please state your location in China when doing so together with contact details, and we will have one of our local tax personnel contact you directly. (more…)

China reserve requirement ratios now 5.5 percent higher than U.S. norm

By Chris Devonshire-Ellis

BEIJING, Mar. 21 - The Chinese government has announced its 15th increase since mid 2006 of the minimum reserve ratio deposit lenders must hold in reserve, to a record high of 15.5 percent. This compares to the United States, reeling from sub-prime debt, where the system is based upon a sliding scale depending upon available reserves and the size and type of lending, of just 10 percent.

The move may have short term fall out repercussions in China. Banks that are under-funded will fall more under the control of the People’s Bank of China, and some smaller provincial lenders may indeed be allowed to collapse into absorption, depending upon the lenders and the nature of the debt. China, mindful of social unrest issues, is more likely to bail out errant lenders unable to maintain sufficient liquidity, although it will be at the price of giving Beijing more control.

It means that Beijing has achieved three objectives; one, being able to reign in the more previously aggressive provincial and local city banks, and collectively seek to dismantle bad debt on their books and manage this from a local welfare perspective, two, in bringing in a measure to control inflation through better control of it’s lending facilities, and third, although not acknowledged, via the re-packaging of debt to domestic and Hong Kong based reinsures ready to take a punt on the growing ability to recover debt from the developing commercial and middle class of China’s major cities. (more…)

Mar. 21 - In a move aimed at boosting the current gloomy stock market, China will not levy a tax on corporate earning from securities trading at the moment.

Income from stock and bonds trading by securities investment funds will be free from corporate income tax for the time being said a statement released by the Ministry of Finance and the Administration of Taxation on Wednesday.

According to Xinhua, institutional investors and funds managers do not need to pay such tax for income from funds management.

Beijing set to approve second board for Chinese SMEs

By Chris Devonshire-Ellis

Mar. 19 - The China Securities Regulatory Commission (CSRC) is set to begin reviewing listing applications for listing on the new Nasdaq-styled second board in Shenzhen, according to its chairman Shang Fulin. This begins the process of the long-awaited second board development, and brings to fruition attempts by the CSRC to develop a multi-tiered structure for investment, especially as the nations primary domestic stock markets in Shanghai and Shenzhen have been declining substantially over the past year - an event that could trigger the flight of billions of RMB from existing shares.

The second Shenzhen board will have a two-tiered application process, one for existing companies and one for start-ups. Chinese companies reporting a combined RMB10 million net profit for the past two years and companies reporting turnover in excess of RMB30 million with an increase in year-on-year sales of 30 percent will both be eligible for listing. To list on the existing main board in Shenzhen, companies must post profits for three consecutive years.

This move has been in the pipeline since 2004 when Beijing created a technology board as a rudimentary form of a Nasdaq-style bourse in Shenzhen. The existing 200 companies on the technology board will be transferred to the new second board, in a move that will transform the city’s stock market. (more…)

Mar. 14 - China’s Corporate Income Tax Law, effective from January 1, has been a work in progress for quite some time. As the tax law itself is more principle-based rather than rules-based, the government has relied on publishing various implementation rules and circulars to clarify how the law is to be implemented. Three important tax circulars were issued in February which will significantly impact foreign invested enterprises (FIEs) in China. These circulars further clarify several significant areas of the new tax regime including tax incentives for high-technology industries and grandfathering treatments.

Tax incentives for high-tech industries
Circular 1 (Caishui [2008] No. 1) further clarifies tax incentives available to certain industries in the new tax law. It provides tax incentives to software production companies, IC production companies and security investment funds. These tax incentives mirror the incentives granted under the old tax regime. Preferential tax treatment will also continue to apply to IC production and assembly companies and software production companies newly established in the western region of China. Circular 1 also states that tax holidays for software production companies and IC production companies will start from the first profit-making year.

Grandfathering further clarified
Circular 21 (Caishuai [2008] No. 21), issued February 4, clarifies how the half-rate reduction during an unutilized tax holiday period should be calculated during the grandfathering period for qualifying FIEs. Circular 21 states that the half-rate reduction during the unutilized tax holiday period should be calculated based on the gradually increased tax rates of 18, 20, 22 and 24 percents for the years 2008, 2009, 2010, 2011 respectively, and 25 percent from 2012 forward. That means the net rates will be 9, 10, 11, 12, and 12.5 percents, depending on the year in which the half-rate reduction applies. For FIEs that were subject to a 24 or 33 percent tax rate under the old tax regime, the half-rate reduction during the unutilized tax holiday period should be calculated based on 25 percent, making the net rate 12.5 percent. (more…)

Mar. 12 - As stated in the implementation rules for the new corporate tax law released late last year, withholding tax on dividend payment to non-residents is 10 percent. Because dividends derived by foreign investors were exempt from taxes under the old tax regime, foreign investors have see their worldwide tax burden increase and their expected returns from investment in China diminish.

However, businesses from countries with favorable tax policies and treaties with China are not affected by the 10 percent WHT.

According to the new law, from January 1, 2008, 10 percent of withholding tax shall be applied to the dividends that a non-resident company receives from a resident company, unless otherwise prescribed in the tax treaty with the relevant foreign government. If the rate in the tax treaty is higher than 10 percent, 10 percent of dividends shall be adopted according to current rules; if the rate in the tax treaty is lower than 10 percent, the rate in the tax treaty should be adopted.

Please click here for a list of all the tax rates on dividends from tax treaties.

For questions regarding withholding taxes or any other part of the new corporate tax law, please contact tax@dezshira.com or visit www.dezshira.com.