Withholding Tax on Non-resident Enterprises Clarified, Drug Law Revision for Comment – China Regulatory Brief

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Withholding tax on China-sourced income of non-resident enterprises clarified

The State Administration of Taxation (SAT) released an announcement on the administration of withholding tax on China-sourced income derived by non-resident enterprises on October 27, 2017 (“the Announcement”). The Announcement further clarifies matters concerning the withholding of corporate income tax (CIT).

According to the Announcement, the administrative burden of the withholding agents will be reduced. The withholding agent will no longer be required to submit contracts to the tax bureaus for record-filing within 30 days after a contract is signed or amended. Further, the current tax settlement requirement of 15 days prior notice to the last payment is now abolished. The required materials to submit tax returns to the tax bureaus were also simplified.

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The Announcement also provides for greater cooperation among different tax bureaus to improve the business environment. For example, when the non-resident enterprise generates income from different tax regions, the withholding agent can choose to pay tax to just one of the relevant tax bureaus.

Moreover, the Announcement clarifies other issues relating to the calculation of taxable income, such as the foreign exchange rule in calculation, the calculation method when the non-resident enterprise accept installments for the payments, as well as how to calculate taxable income in equity transfer and asset transfer.

The Announcement came out with an official interpretation, which contains detailed explanation of the new rules and specific examples. The Announcement will come into force on December 1, 2017, and is expected to be welcomed by both the withholding agents and the non-resident enterprises.

Revised drug administration law, registration measures for comment

The China Food and Drug Administration (CFDA) released revised drafts of the Drug Administration Law and the Administrative Measures for Drug Registration (“the Drafts”) on October 23, 2017 to gather public opinion.

According to the Drafts, China will fully adopt a drug market authorization holder (MAH) system, under which MAHs are responsible for supervising the safety, effectiveness, and quality of their drugs throughout the whole life cycle of the products.

Under the Drafts, the approval regime of clinical trials will be simplified, and overseas trial data will be accepted in drug registration, though an on-site check by CFDA might still be applied.

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The Drafts put emphasis on patent and data protection. When applying for market approval, applicants would be required to outline the applications of the patents involved to prevent potential patent infringement. Qualified applicants, such as applicants of innovative drug or drug used for rare diseases, can apply for data protection together with their application for market approval.

Moreover, the examination process for drug registration would be faster, shortening from 150 days to 120 days from the date of acceptance.

As supportive documents of the Guideline on Deepening the Reform of Examination and Approval System and Encouraging Innovation of Drugs and Medical Devices (“the Guideline”) issued on October 8, 2017, the Drafts are generally consistent with the content of the Guideline. However, some rules mentioned in the Drafts, such as patent and data protection, are not specific enough for implementation. More detailed rules are expected to come out soon following the public comment stage.


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