How To Register for Transfer Tax In China

How To Register for Transfer Tax In China

The foreign investor is expected to submit the necessary documents to taxes within thirty days after the signing of the equity transfer contract. After scrutinizing all documents, should tax authorities conclude that there is no reasonable business motive or the economic interests of an Chinese firm or asset has been transferred as a result of this transaction Chinese tax officials are more likely find that this transaction is tax-motivated and thus, ignore the existence of the offshore holding company, based on the principle of substance over form. If the existence of an offshore holding company is not considered and the transfer is indirect, it will be described by the Chinese taxes as direct sale as a direct disposal. The foreign buyer would be taxed withholding in China.

Documents Required Register for Transfer Tax

  • Equity transfer contracts, or arrangement
  • Documents that illustrate how the relationships between foreign investors and SPV in relation to management, funds, as well as purchase and sale transactions
  • Documents that illustrate the activities of the SPV, its financial accounts, personnel and the property of the SPV. SPV
  • Documents that show the connection between SPV and Chinese investor company in relation to management, finances and purchases and sales
  • Explanation of the foreign investor’s legitimate business reason for setting the SPV
  • Other pertinent information that is required by the tax authorities

Office Locations and Contacts

The State Administration of Taxation Address Yangfangdian Road, Haidian District on the 5th
Zip: 100038
Tel: 010-63417114
Website: http://www.chinatax.gov.cn

State Administration for Industry and Commerce People’s Republic of China
Address: 8 Sanlihe Donglu, Xichengqu, Beijing, 100820, P. R. China
Phone: +86-10-68010463/68013447
Facsimile: +86-10-68010463/68013447
Email: dfa@saic.gov.cn
Contact
Address

What Are All The Eligibility

In an effort to combat loss of tax base and profit shifting China tax authorities are focussing on transfer pricing administration through the enforcement of strict local-flavoured regulations and rules on transfer pricing and imposing strict compliance requirements, and imposing ever-increasing examination of related party transactions. As there are only a few options for tax appeals in China the majority of taxpayers prefer to avoid tax dispute reaching the stage of assessment. In this regard, businesses must therefore evaluate their risk and record their policies on transfer pricing within your China operations.

Instructions

The complicated Chinese legal system and foreign exchange issues, as well as the long approval procedures pose obstacles for foreign investors considering direct equity transfer to China. So, most foreign investors prefer to work with an offshore holding companies that are founded in transparent and administratively open jurisdictions that offer favorable tax treatment, and in some cases even tax-free treatment, as described in the following paragraphs:

  • In the event that an offshore holding firm is set up in a state which has an advantageous tax treaty with China in place, the offshore holding firm could enjoy preferential withholding tax rates as well as withholding dividend taxes paid to its Chinese affiliate to an offshore holding firm.
  • If the foreign investor wishes to dispose of his interest in China the company can sell its shares in the holding company offshore without having to pay taxes on capital gains in China.
  • Furthermore, if the country where the intermediary offshore holding corporation is based also exempts capital gains from tax obligations or tax it at a lower rate or at a low rate, then the foreign investor is able to sell its equity stakes in a China resident company without any tax obligation or even a small tax obligation.

Requirements Information

  • The name and identification number on the passport, ID card, or other valid ID document issued by the institution, its legal representative or the owner
  • The address for your business or home
  • The kind of registration
  • The accounting system
  • The type of production and business operations
  • The production scope and operations
  • The sum total in capital (fund) and investment
  • The definition of production and operation
  • The name and number of the chief financial officer.
  • Other information as specified in the State Administration of Taxation

The Document is required Register for Transfer Tax 

Transfer tax is the transfer of title to property from one individual (or the entity) in one direction to another. In a more narrow sense the term “transfer tax” is in essence a transaction charge charged on transfers of ownership property.

Information that can be useful

  • Circular 698, one the articles that are not drafted in a strict manner that deal with such a complex subject matter as equity transfer clarity, yet leaves no doubt regarding its application, scope as well as reporting and procedure. After recognizing the complexity in the Circular, in early this year the SAT released announcement 24 that addressed the various issues of implementation in relation to Circular 698. The announcement 24 will be effective as of April 1 2012, it could also be used retrospectively for not resolved questions. The issues that are discussed are as follows:
  • The timing of revenue recognition If the business that is not a resident is directly dissolving an equity interest in a resident company located in China and the equity transfer contract uses installment payments that is, the non-resident company will be able to recognize the earnings at the time that the equity transfer agreement becomes effective and the process to change equity ownership is completed.
  • What exactly is the process of changing equity ownership that is complete is not specific and may be interpreted in various different ways. For instance, the procedure for equity ownership is considered complete when you have the Ministry of Commerce has approved the transfer, or when local authorities have endorsed the transfer. Thus, it is recommended to speak with the tax authority responsible for clarifications.
  • Clarification of the transfer of equity that is traded on open stock exchanges. An exception: The income from the transfer of equity from Chinese resident companies that trade on open stock exchanges is excluded from the application of Circular 698 since these are transactions in which the counterparties, the quantities, and sales considerations and the cost of equity are determined by rules of trading on the open stock markets. So, based on Announcement 24 it can be determined that private placements off-exchange sales, and all transactions prior to IPO will be subject to Circular 698.
  • Foreign Investors (effective Controlling parties) The term “effective controlling party isn’t only limited to investors that are in control of Chinese resident enterprises , but as well to foreign investors who indirectly transfer shares to Chinese resident enterprises and who have a minor ownership in the company.
  • Effective tax and do not charge corporate income tax: The term effective tax refers specifically to the effective tax burden for the earnings generated by the sale of equity stakes and not the tax rate statutory that applies to the company. The expression “do not impose” corporate income tax is referring to transactions that aren’t subject to taxation and is not a reference to the other income from offshore of non-resident companies.
  • Indirect transfer of shares involving several foreign investors: If several foreign investors sell of the equity interest in a Chinese resident company simultaneously one investor can represent all foreign investors by making sure to inform of the Chinese tax authority responsible for the Chinese resident company of the indirect equity disposal and supplying the necessary details.
  • Indirect transfer of shares in multiple Chinese resident company: If an investor from outside transfers equity stakes in more than two Chinese resident companies simultaneously as long as the Chinese resident companies are not located within the same city or province the foreign investor could opt to notify the tax authority responsible of one or all of the Chinese resident enterprises of any transfers only. Should the tax agency is of the opinion that tax should be assessed then the foreign investor must pay the tax to tax authorities responsible for Chinese resident companies in a separate manner.

Other uses for the Document/Certificate

If the investor from outside wants to sell his stakes in China the company can sell its shares in the holding company offshore without incurring taxes on capital gains made in China.

External Links

Tax Law

State Administration for Industry and Commerce People’s Republic of China

[http://www.chinatax.go

How To Register for Transfer Tax In China
How To Register for Transfer Tax In China

v.cn/ State Administration of Taxation of the People’s Republic.

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