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China Tax Law Commentary Archive

A comprehensive monthly review of China tax and regulatory news and analysis

China Tax Law Commentary from the U.S. Chinese Services Group and Lili Zheng, partner, Deloitte Tax LLP, provides a bi-monthly roundup of China tax news and analysis. Learn how developments arising from new tax changes may have an impact on your current operations or plans for expanding in China.

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China Tax Law Commentary November 09
A recent circular issued by the Chinese State Administration of Taxation (SAT) addressing the Value Added Tax (“VAT”) treatment of asset reorganization activities; specifically Guoshuihan [2009] No. 585 (“Circular 585”) issued on October 21, 2009; clarifies the VAT exemption for certain corporate reorganizations.

  • A domestic Chinese company plans to raise capital through the use of a public shell company and inject new assets. To effect the transaction, the publicly listed company will transfer all of its assets, liabilities, related rights and obligations (business) to its holding company. Its employees will be transferred to a new company set up by the holding company. After the asset transfer, the publicly listed company will turn into a shell company to facilitate the entry of new investors.

China Tax Law Commentary September 09
Recent guidance issued by the Chinese State Administration of Taxation (SAT) that is designed to strengthen the tax authorities’ tax collection and administration and how this guidance can affect companies doing business in China

  • In the first half of 2009, the entire tax revenue generated by the nation was approximately RMB 2,953 billion, reduced by about RMB 189.5 billion compared to the same period in 2008, which represents a 6% reduction in tax revenue. To cover this substantial revenue shortfall, the SAT has issued a series of circulars to improve tax collection and administration.

China Tax Law Commentary July 09
Some of the recent incentives that were promulgated to attract investment in service outsourcing industries and regional headquarters, etc.

  • With the new PRC Enterprise Income Tax Law (EIT Law) becoming effective in January 1, 2008, MNCS and domestic companies are put on equal playing fields from a China tax perspective as most of the foreign investment incentives have been abolished, and the tax incentives have been narrowed to certain specific industries and projects encouraged by the government, such as environmental protection projects, software and IC industry, high and new technology enterprises, etc. 2009 sees the Chinese government continues to direct investment into encouraged industries and projects and has pushed out more new incentives recently.

China Tax Law Commentary May 09
The new rules for nonresidents engaged in contracted projects or provision of services in China

  • On April 22, 2009, the State Administration of Taxation (SAT) issued a Notice that provides guidance on the determination of tax residence status of Chinese-controlled offshore companies under the new "place of effective management and control" rule in the 2008 Enterprise Income Tax Law (Guoshuifa [2009] 82). The Notice may have a significant impact on Chinese companies listed on a foreign stock exchange and the round tripping of investments. It sets out detailed rules for determining whether a Chinese-controlled offshore incorporated enterprise is a tax resident of China, describes the tax implications of such an enterprise being regarded as a tax resident and sets out the procedures for an assessment of residence status by the relevant local tax bureau. Please click on the link below for detailed analysis in our NTC Tax Analysis Issue P68/2009 in English and Chinese. The provisions of the notice are retroactive from January 1, 2008.

China Tax Law Commentary March 09
The new rules for nonresidents engaged in contracted projects or provision of services in China

  • The Chinese State Administration of Taxation (SAT) issued Provisional Measures on the Administration of Taxation of Contracted Projects and Provisions of Services by Nonresidents (Circular 19) on January 20, 2009. The new rules set forth detailed tax registration and filing requirements applicable to nonresident enterprises and individuals engaging in contracted projects or the provision of various types of services in China. Circular 19, which became effective on March 1, 2009, is expected to strengthen control of nonresidents and increase administrative burdens on nonresidents conducting activities in China.

China Tax Law Commentary January 09
Summary of implications arising from the recently released Implementation Measures for Special Tax Adjustments

  • On January 8, 2009, the State Administration for Taxation (SAT) released the long-awaited Implementation Measures for Special Tax Adjustments (the Implementation Measures), which have retroactive effect from 1 January 2008 and set forth detailed rules regarding transfer pricing, advanced pricing agreements (APA), cost sharing agreements (CSA), thin capitalization, controlled foreign companies and general anti-avoidance.

China Tax Law Commentary December 08
Major tax law changes in the past two months that will affect year-end planning

  • In the past two months, the Chinese authorities have issued numerous major tax law changes that either took effect immediately or become effective on January 1, 2009. These tax law changes will affect virtually every MNC doing business in China.

China Tax Law Commentary October 08
The Implications of China’s Latest Thin Capitalization Rule

  • On September 19, 2008, a Notice on the Tax Deductibility of Related Party Interest Payments was issued jointly by China’s State Administration of Taxation and Ministry of Finance - Caishui [2008] No. 121 (hereafter “Circular 121”). This notice sets out the debt-to-equity ratio for the thin capitalization rules introduced in China’s new tax law, which went into effect on January 1, 2008.

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