Interpretation of Announcement of Withholding of Income Tax of Non-resident Enterprises at Source


Date:  2017-10-31    Autor:   Carrie YAO

Key words: equities/property partially transferred, installment of equities/property transferred, the date on which withholding liability occurs is the exchange rate day

On 27th October, 2017,the State Administration of Taxation(“SAT”) released the “Announcement of the State Administration of Taxation on Matters Concerning Withholding of Income Tax of Non-resident Enterprises (NREs) at Source” This Announcement shall enter into force as of December 1, 2017.

The 37th announcement is aimed at reducing the tax compliance burden for withholding agent, simplify the calculation and provide a more convenient way for the withholding agent to fulfill their obligations.

The changes set out by 37th announcement

Actions on reducing the tax compliance burden        

l Remove the filing ofrelevant contracts

l Remove the tax liquidation.

l Simplify the relevant documents

A.     How to calculate the cost if NREs partially transfer the same type of equities?

Where the same type of equities invested or acquired multiple times is partially transferred, the cost of the equities to be transferred shall be calculated in proportion to the equity transfer ratio based on the total cost of the whole equities.

B.       How to define the withholding date for dividends

Where a NRE derives income from dividends, bonus dividends and other equity investments, withholding shall be made on the date of actual payment to the NRE (asthe shareholder). A withholding agent shall, within seven days from the date of occurrence of the tax withholding obligation, declare and pay the taxes withheld to the competent tax authority at the place where the withholding agent is located.

C.     Foreign currencymatters on the taxable income in respect of the income obtained by the NREsfrom property transfer

Taxpayer

Exchange rate date

Regulation

Withholding  agent

The  date the withholding obligation arises

Where  CIT is to be withheld by a withholding agent, the amount payable shall be  converted into RMB according to the exchange rate on the date the withholding  obligation arises

Self-reports

The  preceding day when the tax payment certificates are issued

Where  a NRE self-reports and files a tax return (before any order to do so by any  competent tax authority), the relevant income shall be converted into RMB  according to the exchange rate on the preceding day when the tax payment  certificates are issued.

Ordered to  report

The preceding day that such order is made by the  competent tax authority

Where  a NRE is ordered by a competent tax authority to pay CIT by withholding at  source within a prescribed period of time, the relevant income shall be  converted into RMB according to the exchange rate on the date preceding the  day that such order is made by the competent tax authority.


D.     How to calculate the withholding tax of the income derived from property transfer paid installments.

Where the income derived from property transfer, which is subject to withholding tax at source, is paid in installments to the non-resident enterprise, the installments may be considered as part of the total cost that the non-residentent erprise has invested into the property until all the total cost has been recovered, and the remaining installments received thereafter by the non-resident enterprise shall be subject to withholding tax.

In a word, only the remaining installments received shall be subject to withholding tax, which give the enterprise more space to financial preparation.

E.     If a withholding agent did not withhold the applicable CIT, the change for filing deadline forNREs

The NRE declares its CIT payable and pays CIT to the competent tax authority (i.e. the taxauthority having jurisdiction over the source of taxable income) within the time period prescribed by such tax authority, the NRE shall be deemed to have timely paid the CIT.



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