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Dec 2017

SAT releases new rules on corporate income tax for non-TREs bringing potential benefits to the financial services industry

In October 2017, the State Administration of Taxation (SAT) released the Public Notice on the Matters Regarding Withholding Corporate Income Tax (CIT) at Source for Non-Tax Resident Enterprises (Non-TREs) (SAT Public Notice [2017] No. 37, PN 37). PN 37 will take effect from 1 December 2017 and replaces a series of important circulars, such as Circular Guoshuifa [2009] No.3 (Circular 3).

PN 37 comprehensively streamlines the withholding regime. Notable changes are as follows:

  • the withholding obligation for non-TREs deriving dividends arises on the actual payment date rather than on the date the dividend declaration is resolved (or the day of the actual payment if it is paid before the resolution); 
  • the withholding tax (WHT) on property transfer income received in instalments can be settled in instalments and deferred until after the relevant investment cost is fully recovered;
  • clarification of the exchange rate to be adopted in calculating the tax liability, and the revision of the foreign exchange conversion rules for foreign currency taxable;
  • removal of the provision that non-TREs shall self-report tax within 7 days if their withholding agents fail to withhold;
  • removal of other certain relevant circulars or provisions, including Circular Guoshuifa [2009] No.698 (Circular 698) in its entirety.

PN 37 will bring significant changes to the way non-TREs fulfil their China tax obligations, and the way withholding agents perform their withholding obligations in every aspect of a cross-border transaction. Parties to cross-border transactions should pay particular attention to these new rules.

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Oliver Kang
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Scott Qian
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Florence Yip
Asia Pacific Tax Leader Financial Services, Asset & Wealth Management, PwC Hong Kong
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Jeremy Ngai
China South Tax Leader
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Rex Ho
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Lear Mei
Partner
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Ingrid Qin
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Janet Xu
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Kenny Lam
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Matthew Wong
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Stella Fu
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Cindy Li
Partner
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Kevin Huang
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