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China Withholding Corporate Income Tax

Updated:2018-4-27 15:34:47    Source:www.tannet-group.comViews:236

Withholding corporate income tax is applied to China-sourced incomes derived by non-resident enterprises without establishments in China. Under the tax rules of the People's Republic of China, tax reporting obligations are the concern of both taxpayers and withholding agents. Under China’s Individual Income Tax Law, the payor of income has the withholding obligation.

Brief introduction to withholding tax in China
A non-resident enterprise deriving passive income from China will be subject to withholding at source, the payor of the income acting as the withholding agent. At the same time, where a non-resident enterprise derives active engineering or service income from China, the payor of the income may also be designated by the PRC tax authorities as a withholding agent. To fulfill its tax withholding obligation, a withholding agent is required to submit tax withholding returns and pay to the tax authorities the taxes withheld on behalf of the taxpayer.

Which kind of income needs to file withholding corporate income tax
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:

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

Foreign enterprises without establishments or places of business in China shall be subject to a unilateral concessionary rate of withholding tax (WHT) at 10% on gross income from dividends, interest, lease of property, royalties, and other China-source passive income unless reduced under a tax treaty. Nevertheless, dividends distributed by a foreign investment enterprise out of its pre-2008 profit are still exempted from WHT.

Procedure for filing withholding CIT
Where a non-resident enterprise derives China-sourced dividends, interests, rents, and royalties, or income from property transfers, it is required to file the withholding tax either by itself or by a withholding agent.

A copy of the contract giving rise to the taxable income, along with a contract registration record form and other relevant documents, must be submitted to the authorized tax bureau within 30 days of signing the contract. All documentation, including those originally in a foreign language, must be translated into Chinese. This procedure applies to each subsequent revision, supplement, or extension of the contract.

Within seven days from the payment date stated in the contract, the withholding agent should pay the withheld amount to the state treasury and submit the withholding return to the local tax authorities. If the income is paid by installment, the withholding agent should, within 15 days prior to making the last payment, report to the authorized tax bureau the details of all completed payments in order to complete a tax withholding clearance.

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