Income tax may be offset from personal and corporate donations

May 19 - As Dezan Shira & Associates advised last week, the Beijing tax bureau has issued today new guidelines for the treatment of tax on charitable donations.

Personal donations
For employees in China wishing to make personal donations, the donated amount will be exempt from individual income tax. A receipt from a China registered charity is required.

Tax deduction ratio
Pursuant to the current tax regulation, donations those made to earthquake disaster areas via non-profit making social and government organizations are tax deductible. The maximum deduction is 30 percent of the tax payer’s taxable income.

However, donations made to the following organizations are fully deductible (i.e. 100 percent):

Donations to the Red Cross Society of China (RCSC) or activities organized or recognized by the RCSC.

Donations to China Charity Federation, Beijing Charity Association, and other charities permitted by tax authority and finance ministry are fully tax deductible (more…)

May 16 – Representative offices in China are not advised to make charitable donations from the China bank accounts as business taxes will be levied. Foreign-invested enterprises are able to donate up to 12 percent of their profits tax free.

Dezan Shira & Associates advises that a representative office make a donation on behalf of the head office, i.e. the headquarters located outside China, and the money transferred from the parent company and not the RO.

Upon receiving receipts from the relevant charity, the donor is suggested to be identified as the parent company, rather than the RO in China, to avoid business tax being levied on the donation. The Beijing tax bureau states that is important both the donation and the receipt show the amount was sent from overseas and that it does not go through the RO’s books.

For other FIEs in China (WFOEs, JVs), the following stipulations apply:

Under current Chinese tax regulations, the allowable deduction of donation for tax purpose is no more than 12 percent of the total annual profit according to calculating the FIE taxable income. (more…)

May 15 - Hong Kong’s fifth-biggest lender, Bank of East Asia, is set to become the first foreign bank approved by Chinese regulators to offer debit card services in the country by next week.

“We will target both our existing customers and new clients (in China) for the local currency yuan-denominated debit card issuance, which will be launched on May 20 in Beijing,” the Bank of East Asia said in a statement.

It added, “The bank has spent a big amount of financial and human resources in the preparations and the data center for the card business will be based in Shenzhen.”

Under Chinese bank card rules, foreign banks should establish IT support and data centers for card operations in a mainland Chinese city and not just operate an offshore data center. Other foreign banks, namely, HSBC, Citigroup and Standard Chartered have also filed similar applications but have yet to complete the process.

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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.