Withholding Tax in China
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Transcript of Withholding Tax in China
Withholding Tax in ChinaUpdated Regulations
Key Concepts & Regulations
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.
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.
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…
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
Key concepts and regulations
CORPORATE INCOME TAX is determined by:
• the nature of payments
• the number of days in China
• the service venue
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%
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
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.
Key concepts and regulations
INDIVIDUAL INCOME TAX is determined by:
• the nature of payments
• the number of days in China
• the service venue
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
Key concepts and regulations
Business Tax is determined by:
• whether the transaction is subject to business tax or not.
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%
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.
Contact Us
NCO China
tel: +86 (10) 8447 8118
fax: +86 (10) 8447 9349
e-mail: [email protected]
website: www.ncochina.com