In accordance with Opinions of the State Taxation Administration on Further Deepening the Reform of “Delegating Power, Streamlining Administration, and Optimizing Government Services” to Optimize the Tax Environment (Shui Zong Fa [2017] No.101), and based on Enterprise Income Tax Law of the People’s Republic of China (hereinafter referred to as Enterprise Income Tax Law) and its Implementation Regulations and Tax Collection and Administration Law of the People’s Republic of China (hereinafter referred to as Tax Collection and Administration Law) and its Implementation Rules, certain matters regarding withholding non-resident enterprise income tax at source are announced as follows: 

1. This Announcement shall apply to matters with respect to withholding non-resident enterprise income tax at source in accordance with Article 37, 39 and 40 of Enterprise Income Tax Law, and shall not apply to matters related to the implementation of Article 38 of Enterprise Income Tax Law.

2. Where a taxpayer entrusts an agent or designates a third party to make the relevant payments as stipulated in Article 104 of Implementation Regulations of Enterprise Income Tax Law, or a third-party guarantor makes the relevant payments in accordance with the guarantee contract or law, the principal or the designator, or the warrantee or the guaranteed person shall bear the withholding obligation.

3. Income derived from property transfer as stipulated in Article 19 (2) of Enterprise Income Tax Law shall include income derived from the transfer of equity and other equity investments (hereinafter referred to as equity). The amount of taxable income from equity transfer shall be the balance of income from equity transfer after deducting net value of the equity.

“Income from equity transfer” refers to the consideration received by the transferor for the equity transfer transaction, which includes all kinds of monetary and non-monetary income.

“Net value of the equity” refers to the tax basis of the acquisition of such equity. The tax basis shall refer to the capital injected by the transferor when it originally invested in the Chinese resident enterprise, or the consideration originally paid by the transferor to acquire such equity of the Chinese resident enterprise. Where the equity’s value has depreciates or appreciates during the period held by the transferor, and its profits and loss can be recognized in accordance with the regulations of the finance and taxation departments of the State Council, the net value of the equity shall be adjusted accordingly. When calculating the income from equity transfer, the enterprise shall not deduct the amount of income that may be distributed according to the proportion of such equity from the retained earnings of shareholders such as the undistributed profits of the invested enterprise.

Where the same equity that has been invested or acquired multiple times is partially transferred, the corresponding cost of the transferred equity shall be calculated and determined in accordance with the proportion transferred in the total cost of such equity.

4. Where the withholding agent’s payment or payment due is denominated in a currency other than Chinese yuan, it shall be converted into Chinese yuan based on the following rules respectively:

a) Where the withholding agent withholds enterprise income tax, the amount of the non-resident enterprise’s taxable income shall be converted to Chinese yuan at the central parity of Chinese yuan exchange rate on the date when the withholding obligation occurs, i.e. the date when payment is actually paid or due.

b) Where the non-resident enterprise which has obtained income files and pays the taxes that shall be withheld at source before the tax authority in charge orders it to pay such taxes within a prescribed period, the amount of the non-resident enterprise’s taxable income shall be calculated in Chinese yuan converted from the foreign currency at the central parity of Chinese yuan exchange rate one day before the issuance of the letters of tax remittance.

c) Where the non-resident enterprise which has obtained income is ordered by the tax authority in charge to pay the taxes that shall be withheld at source within a prescribed period, the amount of the non-resident enterprise’s taxable income shall be calculated in Chinese yuan converted from the foreign currency at the central parity of Chinese yuan exchange rate one day before the tax authority in charge makes the decision on setting the deadline for settling such tax payments.

5. Where the income from property transfer or the net value of the property is denominated in a currency other than Chinese yuan, in accordance with the three scenarios listed in Article 4 of this Announcement, the amount of the item denominated in a foreign currency shall be converted into Chinese yuan first, and the taxable income obtained by the non-resident enterprise from property transfer shall be then calculated in accordance with Article 19 (2) of Enterprise Income Tax Law and the relevant provisions.

The currency for the net value of the property or the income from property transfer shall be the currency denominating the amount actually paid or collected when obtaining or transferring the property. Where the original currency ceases its circulation and a new currency is adopted, the net value of the property or the income from property transfer shall be calculated in the new currency converted at the ratio of conversion between the old and new currency markets.

6. Where a withholding agent concludes with a non-resident enterprise a business contract relating to income prescribed in paragraph 3 of Article 3 of Enterprise Income Tax Law and the contract stipulates that the withholding agent shall actually bear the tax payable, the withholding agent shall calculate the taxes that shall be withheld after converting the non-resident enterprise’s income excluding tax into income inclusive of tax, and pay the taxes.

7. The withholding agent shall, within 7 days from the date of occurrence of the tax withholding obligation, file the taxes withheld with the tax authority in charge at the place where the withholding agent is located and remit the taxes. Where the withholding agent fails to pay the taxes due, it shall be handled in accordance with Article 1 of Announcement of the State Taxation Administration on Several Issues Regarding the Administration of Non-Resident Enterprises’ Enterprise Income Tax (State Taxation Administration Announcement No. 24 of 2011).

Where the income obtained by the non-resident enterprise and shall be withheld at source is equity investments, including dividends and bonuses, the date on which the relevant tax withholding obligation occurs shall be the actual payment date of such equity investments including dividends and bonuses.

Where the non-resident enterprise obtains income from the transfer of properties in installments and the enterprise income tax shall be withheld at source, the funds collected in installments may be first deemed as recovering the previous property investment costs, and the taxes shall be calculated and withheld after all costs are recovered.

8. Withholding agents shall submit the Enterprise Income Tax Withholding Return of the People’s Republic of China when filing and paying the taxes that shall be withheld.

Withholding agents may submit the relevant documentation before filing and paying the taxes that shall be withheld, and the documentation that has been submitted shall not be submitted again at the time of tax filing.

9. Where the withholding agent fails to withhold tax in accordance with the law or is unable to perform the obligation of withholding in accordance with Article 37 of Enterprise Income Tax Law, the non-resident enterprise that obtains the income shall, in accordance with Article 39 of Enterprise Income Tax Law, file the taxes that are not withheld with the tax authority in charge at the place where the income is obtained and pay the taxes, submitting the Enterprise Income Tax Withholding Return of the People’s Republic of China.

Where the non-resident enterprise fails to file and pay taxes in accordance with Article 39 of Enterprise Income Tax Law, the tax authority may order it to pay the taxes within a specified time limit, and the non-resident enterprise shall file and pay the taxes within the period determined by the tax authority. Where the non-resident enterprise files and pays taxes before it is ordered by the tax authority to do so, it shall be deemed to have paid the taxes on schedule.

10. Where the same item of income obtained by the non-resident enterprise arises in multiple places within China and involves multiple tax authorities in charge, the non-resident enterprise may, when filing and paying the taxes that are not withheld in accordance with Article 39 of Enterprise Income Tax Law, select one place to file and pay the taxes in accordance with Article 9 of this Announcement. The tax authority in charge that deals with the filing shall, within five working days after receiving the filing, send a Letter on Tax Matters of Non-Resident Enterprises (see the Annex) to the tax authorities in charge at the place where the withholding agent is located and other places where the same item of income is obtained, and inform the non-resident enterprise of relevant tax matters.

11. The tax authority in charge may require the taxpayer, the withholding agent or other relevant parties that have relevant information to provide contracts and other relevant documentation related to the taxes that shall be withheld. The withholding agent shall establish account books for taxes withheld and the contract data files to accurately record the withholding of non-resident enterprises’ enterprise income taxes.

12. Where the withholding agent fails to withhold taxes in accordance with Article 37 of Enterprise Income Tax Law, the tax authority in charge at the place where the withholding agent is located shall, in accordance with Article 23 of Administrative Penalty Law of the People’s Republic of China, order the withholding agent to withhold the taxes, and hold the withholding agent accountable in accordance with the law. Where taxes need to be recovered from the taxpayer, the tax authority in charge at the place where the income arises shall recover the taxes in accordance with the law. Where the place where the withholding agent is located is different from the place where the income arises, the tax authority in charge at the place where the income arises shall be responsible for recovering the taxes and shall verify the relevant information through the tax authority in charge at the place where the withholding agent is located. The tax authority in charge at the place where the withholding agent is located shall, within five working days after it determines that the taxes payable fail to be withheld in accordance with the law, send a Letter on Tax Matters of Non-Resident Enterprises to the tax authority in charge at the place where the income arises, and inform the non-resident enterprises of relevant tax matters.

13. The tax authority in charge may, when recovering the taxes payable by the non-resident enterprise in accordance with Article 12 of this Announcement, take the following measures:

a) Ordering the non-resident enterprise to file and pay the taxes within a specified time limit.

b) Collecting and verifying the relevant information on other income items of the non-resident enterprise within China and the payers thereof, and sending a Notice on Tax Matters to the payers of such other income items, and recovering the tax arrears and overdue payment surcharges from other income items of the non-resident enterprise in accordance with the law.

Where the payer of other items is located in a place different from the place where the income on which tax is not withheld occurs, the tax authority in charge at the place where the payer of such other items is located shall provide support and assistance.

14. Where the withholding agent has actually collected the taxes that shall be withheld at source in accordance with the provisions of this Announcement, but fails to remit the taxes within a specified period, which falls under any of the following circumstances, it shall be deemed to have withheld but have not remitted the taxes, which shall be handled in accordance with the provisions of relevant laws and administrative regulations:

a) The withholding agent has informed the payee that taxes have been withheld;

b) It has separately listed the taxes that shall be withheld in financial accounting;

c) It has separately deducted or starts to separately amortize and deduct the taxes that shall be withheld in tax filing;

d) Other evidence proving that taxes have been withheld.

Unless it falls under the aforementioned circumstances, failing to pay the taxes that shall be withheld at source in accordance with this Announcement within a specified period shall be deemed as not withholding taxes that shall be withheld, which shall be handled in accordance with the provisions of relevant laws and administrative regulations.

15. In the case of any discrepancies between this Announcement and the tax treaties and the relevant provisions thereof, the tax treaties and the relevant provisions shall prevail.

16. The tax authority in charge at the place where the withholding agent is located shall be the tax authority in charge of the income tax of the withholding agent.

For different items of income as specified in Article 7 of Implementation Regulations of Enterprise Income Tax Law, the tax authority in charge at the place where the income is obtained shall be determined in accordance with the following principles:

a) For income from the transfer of immovable property, it shall be the tax authority at the place where the immovable property is located.

b) For income from the transfer of equity investment assets, it shall be the tax authority in charge of the income tax of the invested enterprise.

c) For income from equity investment including dividends and bonuses, it shall be the tax authority in charge of the income tax of the enterprise that distributes the income.

d) For income from interests, rentals, and royalties, it shall be the tax authority in charge of the income tax of the entity or individual that bears or pays the income.

17. This Announcement shall enter into force from 1 December, 2017. Paragraphs 2 and 3 of Article 7 and paragraph 2 of Article 9 of this Announcement may apply to income that has arisen before the implementation of this Announcement and has not been taxed. The following regulations shall be repealed simultaneously:

a) Circular of the State Taxation Administration on Issuing the Proposed Measures for the Administration of the Withholding of Non-Resident Enterprises’ Enterprise Income Tax at Source (Guo Shui Fa [2009] No.3).

b) The following statements in Article 2 c) of Circular of the State Taxation Administration on Further Strengthening the Administration of Non-Resident Taxation (Guo Shui Fa [2009] No. 32):

“Tax authorities in all regions shall, in accordance with the provisions of Circular of the State Taxation Administration on Issuing the Proposed Measures for the Administration of the Withholding of Non-Resident Enterprises’ Enterprise Income Tax at Source (Guo Shui Fa [2009] No.3), implement the tax withholding registration system and the contract recordation system, assist withholding agents with the withholding in a  timely and accurate manner, set up lists and files for the administration thereof, and recover evaded taxes”.

c) The following statements in Article 4 b) (iii) of Opinions of the State Taxation Administration on Strengthening Tax Collection, Reducing Tax Evasion and Increasing Revenue (Guo Shui Fa [2009] No. 85):

“All regions shall, in accordance with Circular of the State Taxation Administration on Issuing the Proposed Measures for the Administration of the Withholding of Non-Resident Enterprises’ Enterprise Income Tax at Source (Guo Shui Fa [2009] No. 3), implement the tax withholding registration system and the contract recordation system, assist withholding agents with the withholding in a timely and accurate manner, and set up lists and files for the administration thereof.”

d) Circular of the State Taxation Administration Regarding Reinforcing the Administration of Enterprise Income Tax Collection and Income Derived from Equity Transfers by Non-Resident Enterprises (Guo Shui Han [2009] No.698).

e) Article 9 of Circular of the State Taxation Administration on Issuing the Proposed Measures for the Coordinated Administration of Non-Resident Enterprises’ Taxes (Guo Shui Fa [2010] No. 119).

f) Article 36 of the Announcement of the State Taxation Administration on Issuing the Administrative Measures for Enterprise Income Tax in Enterprise Restructuring (State Taxation Administration Announcement No. 4 of 2010).

g) Articles 5 and 6 of Announcement of the State Taxation Administration on Several Issues Concerning the Administration of Non-Resident Enterprises’ Enterprise Income Tax (State Taxation Administration Announcement No. 24 of 2011).

h) The following statements in paragraph 3 of Article 2 of Announcement of the State Taxation Administration on Issuing the Proposed Taxation Administrative Measures for Non-Resident Enterprises Engaging in International Transport Business (State Taxation Administration Announcement No. 37 of 2014):

“And Circular of the State Taxation Administration on Issuing the Proposed Measures for the Administration of the Withholding of Non-Resident Enterprises’ Enterprise Income Tax at Source (Guo Shui Fa [2009] No.3)”.

i) Paragraph 2 of Article 8 of Announcement of the State Taxation Administration Regarding Certain Enterprise Income Tax Matters on Indirect Transfer of Properties by Non-Resident Enterprises (State Taxation Administration Announcement No. 7 of 2015).

It is hereby announced.

Annex: List of Repealed Documents and Clauses.docx

State Taxation Administration

October 17, 2017

All information in this document is authentic in Chinese. English is provided for reference only. In case of any discrepancy, the Chinese version shall prevail.