Tax & Accounting

China’s Reduced VAT Rates

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By Alexander Chipman Koty

China recently lowered its value-added tax (VAT) rates, as part of an RMB 400 billion (US$64 billion) tax cut package.

The Ministry of Finance (MOF) and the State Administration of Taxation (SAT) recently released the Circular about Adjusting the Rates on Value-added Tax, which explain the details of the new VAT rates.

According to the circular, the tax cuts reduce the 17 percent VAT bracket to 16 percent, and the 11 percent VAT bracket to 10 percent. The six percent VAT bracket remains unchanged. The new VAT rates will go into effect on May 1, 2018.

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Profit Repatriation from China

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By Dezan Shira & Associates

For foreign companies with subsidiaries in China, profit repatriation from their subsidiaries has always been an important and challenging issue. China maintains a strict system of foreign exchange controls, meaning funds flowing into and out of China are tightly regulated. It is important for foreign investors to incorporate a profit repatriation strategy into the set-up planning of a subsidiary in China to ensure its ability to access the profits earned and to achieve significant cost savings.

There are several ways to repatriate profit from China, the most obvious being for a company’s China-based entity to pay dividends directly to its foreign parent company. However, this is subject to certain prerequisites – only profits that have undergone annual audit can be repatriated using this channel, ensuring that the gross profit will be subject to 25 percent CIT. Dividends are subject to a further 10 percent withholding CIT when distributed to foreign investors.

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China Slashes VAT Rates in US$64 Billion Tax Cut

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By Alexander Chipman Koty

China will cut value-added tax (VAT) rates for businesses in the manufacturing, transportation, construction, telecommunication, and agricultural sectors, according to Premier Li Keqiang.

The cuts – which will go into effect on May 1, 2018 – are expected to slash taxes by RMB 240 billion (US$38.17) this year. They are part of a wider tax reform package that aims to reduce taxes by a total of RMB 400 billion (US$64 billion) in 2018.

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Withholding Corporate Income Tax in China

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By Dezan Shira & Associates

In China, withholding Corporate Income Tax (CIT) is applied to the following China-sourced incomes derived by non-resident enterprises without establishments in China, or to that derived by non-resident enterprises with establishments in China but whose income is not related to these establishments:

  • Dividends, bonuses, and other equity investment proceeds;
  • Interests, rents, and royalties and income from the transfer of property; and
  • Any other incomes subject to CIT obtained by non-resident enterprises.

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Non-profit Organizations in China: How to Apply for Tax Exempt Status

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By I-Ting Shelly Lin

On February 7, 2018, the Chinese Ministry of Finance (MOF) and the State Administration of Taxation (SAT) released a notice clarifying key concerns about the tax exempt status of non-profit organizations (NPOs) (Cai Shui [2018] No.13).

The notice amends the tax exempt qualification standards set out in Cai Shui [2014] No.13, and provides guidance for application procedures. This new notice does not relate to foreign NGOs unless they set up a domestic NPO.

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Hong Kong Account Holders: Prepare for AEOI Reporting

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By Jennifer Lu

Those who hold an account (or are a controlling person) with Hong Kong Financial Institutions – both individuals and entities – must prepare to report their tax residency information to the Inland Revenue Department (IRD) by May 2018 for exchange with 75 reportable jurisdictions under the AEOI standard.

In September 2014, Hong Kong indicated its support for implementing automatic exchange of financial account information (AEOI) on a reciprocal basis with appropriate partners, with a view to commencing the first exchanges from 2018.

Under the AEOI standard, financial institutions in Hong Kong are required to identify financial accounts held by “tax residents of reportable jurisdictions” or held by passive non-financial entities whose controlling persons are tax residents of reportable jurisdictions, in accordance with due diligence procedures.

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Hong Kong’s New Transfer Pricing Regime

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By Paul Dwyer, Director, Head of International Tax and Transfer Pricing

On December 29, 2017, Hong Kong gazetted the Inland Revenue (Amendment) (No. 6) Bill 2017 (the Amendment Bill). The Amendment Bill, which was formally introduced into the Legislative Council on January 10, represents a crucial step in the development of Hong Kong’s transfer pricing regulatory and enforcement regime.

The objectives of the Amendment Bill are to codify transfer pricing rules into Hong Kong’s Inland Revenue Ordinance (IRO), introduce transfer pricing documentation requirements, and implement other measures set out in the Organisation for Economic Co-operation and Developments (OECD’s) Base Erosion and Profit Shifting (BEPS) program.

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China’s Public Notice 9 on Beneficial Ownership: Favorable Changes for Treaty Benefits

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By Paul Dwyer, Director, Head of International Tax and Transfer Pricing

China’s State Administration of Taxation (SAT) released the long-awaited Public Notice [2018] No.9 (Public Notice 9) on February 3, 2018.

Public Notice 9 provides additional guidance on assessing the beneficial ownership status for the purpose of enjoying the treaty benefits under China’s tax treaties, including the China-Hong Kong Double Tax Agreement. Public Notice 9 will take effect from April 1, 2018.

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