Oct 2017, Issue 32
SAT releases new rules on corporate income tax for non-TREs bringing significant changes in the timing of withholding
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  No. 37, PN 37). PN 37 shall take effect from 1 December 2017 and replace a series of important circulars, such as Circular Guoshuifa  No.3 (Circular 3), etc.
PN 37 streamlines the withholding regime in a comprehensive way. In comparing PN 37 with the existing circulars, notable changes are:
- the withholding obligation for non-TREs deriving dividends arises on the day the payment is actually made rather than on the day of the resolution to declare the dividends (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;
- the exchange rate to be adopted in calculating the tax liability is clarified and the foreign exchange conversion rules for foreign currency taxable income are revised;
- the provision that non-TREs shall self-report tax within 7 days if their withholding agents fail to withhold is removed;
- relevant circulars or provisions, including the whole Circular Guoshuifa  No.698 (Circular 698), have been abolished.
PN37 will bring significant changes to the way that non-TREs fulfil their China tax obligation, and withholding agents perform their withholding obligation, in all aspects of cross-border transactions. Parties to any cross-border transaction should pay particular attention to these new rules.