SAT Issues New Notice Regarding the Interest Income of Overseas Financial Branches

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Jun. 17 – The State Administration of Taxation recently issued a notice regarding the tax collection of the outside financial branches obtaining interest income from mainland China.

Guoshuihan [2010] No. 266, issued on June 2nd, stipulates that according to the tax treaties, tax-free foreign financial institutions that have set up unincorporated branches in third countries, but belong to the same legal person as its head office, are entitled to enjoy tax incentives in accordance with the tax agreement signed between China and the head office country. Branch offices should implement the procedures according to the “Non-resident Tax Treatment Management Notice” (Guoshuifa [2009] No. 124).

Chinese enterprise banks that have set up overseas branches which obtain interest income from China are not entitled to enjoy tax incentives under the tax agreement or tax treaty. These banks should file the relevant provisions of the domestic law in accordance with the “Tax Notice for Non-resident Enterprises Obtaining Interest Income from China” (Guoshuihan [2008] No. 955).

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