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Alert on China's new enterprise income tax notice for non-resident taxpayers 

超级用户 Published in 2014-08-13 】    
 

 

The “Notice on provisional Measures on the Collection of Tax on Non-Resident Taxpayers Engaged in International Transportation Business” (2014 No.37 Notice) recently issued by the China State Authority of Taxation will take effect on 1 August 2014. It is expected that it will impact international shipping in China. BIMCO members should keep a close eye on this issue, in particular, foreign ship owners, managers and operators who are considered non-resident taxpayers under the current Chinese tax regulation.

No.37 Notice is designed to quantify working procedures regarding income tax management for non-resident taxpayers engaged in international shipping in China. It defines who is obliged to report income tax; how to register and apply; what items would be considered as taxable income and so on. The following points are worth noting:

Who are “non-resident taxpayers”
Pursuant to Clause 2 of No.37 Notice, it will apply to all foreign enterprises carrying out international transportation business via vessels, aircraft or space slots (either owned or hired), which includes the transportation of passengers, cargo or post in and out of Chinese ports, together with other cargo-handling and warehousing activities. It further clarifies that all voyage chartering or time chartering shall be considered as international transportation regulated by this notice, whilst the demise chartering is excluded.

How to register your enterprise income tax
Foreign enterprises in the international transportation business in China are obliged to register with the local tax authority within 30 days either from the date the business license is issued by the regulator, or from when the transportation agreement is signed. Foreign enterprises are permitted to appoint local agents to handle their tax registration. They can choose one port to register with by submitting their business license, operational documents, contracts and their local contact. If foreign enterprises provide transportation service at different ports in China, they may need to submit photocopies of their tax registration to different tax authorities at different ports. 

What is “taxable income”?
According to the notice, enterprise income tax shall be deducted from the actual income received from the transportation services, less the relevant expense incurred. Income derived from passenger and cargo transportation means all freight earnings, such as ticket revenues, overweight baggage charges, insurance premiums, entertainment and so on for passenger carriage, as well as basic freight together with various surcharges for cargo carriage.

Tax Withholding Obligation
Clause 9 of No.37 Notice reiterates that the Chinese partners assume an obligation to withhold tax in the event that the foreign enterprises fail to register with the tax authority. It includes: (1) any organisation or individual who is supposed to pay to a foreign enterprise or their branches, affiliates or representative office in China, or who is entitled to collect amounts on behalf of foreign enterprises; (2) any organisation or individual who effects payment through their related parties abroad or the third parties they designated; (3) any other organisation or individual as defined by Enterprise Income Tax Law.

How to apply the tax treaties
Foreign enterprises are eligible to apply for an official confirmation from the Chinese tax authority through which they may benefit from reduced or waived enterprise income tax due to a double taxation treaty between their nation and China. BIMCO has provided a list of all the Tax Treaties that China has signed so far.

Applicants may need to submit an “Application Form for Non-Resident Tax Agreement Treatment” coupled with (1) a copy of the enterprise registry certificate issued by their nation; (2) ID or legal entity supporting documents issued by their home tax authority or shipping department; (3) a copy of any transportation agreements entered into with a Chinese partner; (4) statements of sailing routes, passenger or post carriage, including a Chinese port call plan; (5) others items as may be required by the tax authorities. One application will be valid for three years.

Any foreign enterprises failing to follow the application procedure but benefitting from the tax treaty will be assessed as per tax authority’s order within a given period. This may result in them being required to pay back any tax due that they have received. Any foreign enterprises who inadvertently missed out on any tax treaty benefit are entitled to apply for a tax refund within three years of their over-payment.


In short, China intends to tighten its tax regulations for non-resident enterprises who benefit from their international shipping business in China. Members should check with their local agents or business connections in order to ensure they are fully compliant with their tax obligations in China. The China State Authority of Taxation is expected to issue further guidelines for implementation, but have not done so as yet.

BIMCO will monitor this issue closely and keep members posted of any development. For further information about No.37 notice, please contact BIMCO Shanghai Centre (General Manager Wei Zhuang, zw@bimco.org

 
 
 

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