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Withholding Tax in China Updated Regulations

Withholding Tax in China

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An NCO China Presentation: Key concepts and concerns regarding withholding tax in China. www.ncochina.com

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Page 1: Withholding Tax in China

Withholding Tax in ChinaUpdated Regulations

Page 2: Withholding Tax in China

Key Concepts & Regulations

Page 3: Withholding Tax in China

Key concepts and regulations

What is withholding tax?

• Withholding tax is not a type of tax but a method of collecting taxes.

• Many kinds of taxes can be withheld:– Individual Income Tax– Corporation Income Tax– Stamp Duty, business tax etc.

Page 4: Withholding Tax in China

Key concepts and regulations

When is the tax withheld? • The receiver of payment is not a registered tax payer

in China.

• The tax is paid by the payer on behalf of the receiver.

Page 5: Withholding Tax in China

Key concepts and regulations

Today’s focus:

• Regulations and payment procedures concerning withholding tax when payment is made out of China for non-trading related activities.

E.g. Dividend, interest, royalty, service fee, property transfer payments, etc…

Page 6: Withholding Tax in China

Key concepts and regulations

Two taxes are usually withheld:

1. Income tax for a corporation or an individual• Corporate Income Tax (CIT)• Individual Income Tax (IIT)

2. Business tax

Page 7: Withholding Tax in China

Key concepts and regulations

CORPORATE INCOME TAX is determined by:

• the nature of payments

• the number of days in China

• the service venue

Page 8: Withholding Tax in China

Corporate Income Tax

Nature of payment

Conditions Taxable income CIT Rate

Dividend Before 2008 NIL

After 2008 (2008) Dividend recorded / to be

paid

10% ( according to DTT)

Interest The loan is used in China Interest recorded/ to be paid

10% ( according to DTT)

Royalty The royalty is used in China Royalty recorded / to be

paid

10% ( according to DTT)

Property transfer

The property is located in China

Income – property residual value

10%

Page 9: Withholding Tax in China

Corporate Income Tax

Nature of payment

Conditions Taxable income CIT Rate

Service fee Services render out of China

NIL

Services render in China more than 6 months (183

days)

Service fee recorded/ to be

paid

Deemed profit margin * 25%

Services render in China within 6 months (183 days)

NIL

Page 10: Withholding Tax in China

Corporate Income Tax

Nature of payment

Conditions Taxable income Corporate Income Tax Rate

Equity acquisition

Indirect share transfer * NIL *

Direct share transfer Capital gain 10%

* Must provide tax bureau with relevant supporting documents if:- The seller has controlling power of the intermediary company;- The tax rate in the jurisdiction of the intermediary company is less than 12.5% or tax exempted.

Tax authorities may disregard the existence of an intermediary company if the purpose of this company is for tax avoidance. Therefore, the sale of the company will be subject to Chinese tax.

Page 11: Withholding Tax in China

Key concepts and regulations

INDIVIDUAL INCOME TAX is determined by:

• the nature of payments

• the number of days in China

• the service venue

Page 12: Withholding Tax in China

Individual Income Tax

Nature of payment

Conditions Taxable Income Individual Income Tax Rate

Dividend NIL

Interest Interest to be paid/ recorded

20%

Royalty Royalty to be paid/recorded

20%

Service fee Services rendered out of China

NIL

Services rendered in China for more than 6 months

(>183 days)

Service fee to be paid / recorded

Tax table for independent contractor

Services rendered in China within 6 months (<183 days)

NIL

Page 13: Withholding Tax in China

Key concepts and regulations

Business Tax is determined by:

• whether the transaction is subject to business tax or not.

Page 14: Withholding Tax in China

Business Tax

Nature of payment

Conditions Taxable Income Business Tax Rate

Dividend NIL

Interest Interest to be paid / recorded

5%

Royalty Royalty to be paid / recorded

5%

Service fee Services rendered out of China

Service fee to be paid / recorded

3-20%

Services rendered in China for more than 6 months

(>183 days)

Service fee to be paid / recorded

3-20%

Services rendered in China within 6 months (<183 days)

Service fee to be paid / recorded

3-20%

Page 15: Withholding Tax in China

Business Tax

Nature of payment

Conditions Taxable income Business Tax Rate

Equity acquisition

Indirect share transfer * NIL *

Direct share transfer NIL *

* Business tax paid cannot be regarded as deductible expenses for corporation income tax.

Page 16: Withholding Tax in China

Contact Us

NCO China

tel:  +86 (10) 8447 8118

fax: +86 (10) 8447 9349

e-mail:  [email protected]

website: www.ncochina.com