Tax & Accounting
Last week, China’s State Administration of Taxation (SAT) released measures clarifying what documents are needed for corporate income tax (CIT) deductions.
SAT Announcement  No. 28, which will go into effect on July 1, 2018, states the specific instances where taxpayers may not require fapiao – Chinese invoices – in support of CIT deductions.
Foreign businesses in China are less likely to disregard fraud than in the past. The speed of economic growth in the country detracted attention from cost savings; a more competitive market now means businesses need to build stronger anti-fraud programs to protect margins and improve efficiency.
But preventing and detecting fraud is not getting any easier. The pace of regulatory reform and grey legal areas these reforms can create make a space where businesses can begin operating in the halfway between right and wrong.
Overseas stakeholders are already handicapped in this environment due to geographic distance, which limits their visibility on their China operation. But their risks are exacerbated by the increased capability of local enforcement agencies, which have considerable leeway in interpreting new national measures.
The latest issue of China Briefing Magazine, titled “How to Manage Transfer Pricing in China“, is out now and currently available to subscribers as a complimentary download from the Asia Briefing Publication Store.
In this issue:
- The Scope of Contemporaneous Documentation
- Best Practices for Year-end Transfer Pricing Adjustments
- Intro-group Service Fee Treatment
- Key Components of Hong Kong’s BEPS Bill
Environmental protection is a growing priority for China’s government, which has increasingly been punishing firms that are noncompliant with environmental laws. As a result, some companies are facing spiraling operational costs due to disruption of supply chains and more stringent environmental compliance requirements.
Businesses in heavily polluting industries, such as ceramics, papermaking, printing and dyeing, cement, and electroplating, have at times been requested to escalate anti-pollution measures and production techniques. Failure to do so within a designated time frame directly leads to penalties from environmental regulators and reduction or suspension of production.
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.
Last week on April 25, the State Council announced that China will cut more than RMB 60 billion (US$9.5 billion) worth of taxes for small and micro enterprises and high-tech firms.
The tax cuts come in the form of seven measures designed to reduce costs for small companies and stimulate innovation. According to a government statement, “The move aims to reduce the cost for innovation and entrepreneurship, energize small and micro businesses, and spur job creation.”
China recently announced that it would lower its value-added tax (VAT) rates and expand the criteria for businesses to qualify as small-scale VAT taxpayers, as part of an RMB 400 billion tax cut package.
In support of this announcement, the State Administration of Taxation (SAT) issued two new circulars explaining the changes to the VAT system: SAT Announcement  No. 17 and SAT Announcement  No. 18.
The announcements explain changes to the VAT system, and offer timelines and guidance for implementation. As the bulk of the changes are set to take effect on May 1, 2018, companies located in or doing business with China should take action to adjust to the tax updates and determine how their operations will be affected.