Withholding tax is a method of collecting taxes where the receiver of payment is not a registered tax payer in China. The payer pays the tax on behalf of the receiver. Regulations concerning withholding tax on non-trading related outbound payments from China, such as dividends and royalties, determine corporate income tax based on the payment nature, number of days spent in China, and service venue, and individual income tax the same way. Business tax is determined by whether the transaction is subject to business tax. Tax authorities may disregard an intermediary company if its purpose is tax avoidance.

1. Withholding Tax in China Updated Regulations

2. Key Concepts & Regulations

3. Key concepts and regulations What is withholding tax? Withholding tax is not a type of tax but a method of collecting taxes. Many kinds of taxes can be withheld: Individual Income Tax Corporation Income Tax Stamp Duty, business tax etc.

4. Key concepts and regulations When is the tax withheld? The receiver of payment is not a registered tax payer in China. The tax is paid by the payer on behalf of the receiver.

5. Key concepts and regulations Today’s focus: Regulations and payment procedures concerning withholding tax when payment is made out of China for non-trading related activities. E.g. Dividend, interest, royalty, service fee, property transfer payments, etc…

6. Key concepts and regulations Two taxes are usually withheld: Income tax for a corporation or an individual Corporate Income Tax (CIT) Individual Income Tax (IIT) Business tax

7. Key concepts and regulations CORPORATE INCOME TAX is determined by: the nature of payments the number of days in China the service venue

8. Corporate Income Tax

9. Corporate Income Tax

10. Corporate Income Tax * Must provide tax bureau with relevant supporting documents if: - The seller has controlling power of the intermediary company; - The tax rate in the jurisdiction of the intermediary company is less than 12.5% or tax exempted. Tax authorities may disregard the existence of an intermediary company if the purpose of this company is for tax avoidance. Therefore, the sale of the company will be subject to Chinese tax.

11. Key concepts and regulations INDIVIDUAL INCOME TAX is determined by: the nature of payments the number of days in China the service venue

12. Individual Income Tax

13. Key concepts and regulations Business Tax is determined by: whether the transaction is subject to business tax or not.

14. Business Tax

15. Business Tax * Business tax paid cannot be regarded as deductible expenses for corporation income tax.

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