Foreign investors in China are no longer required to present a separate tax record filing for each outbound remittance as long as they are under the same contract, according to a regulation update announced recently by the tax authorities.
Faced with the slowdown of the economy and the global COVID pandemic, the Chinese authorities have introduced new regulations in order to simplify the tax system and attract more foreign investment.
Until recently, it was required that separate tax record filing for each outbound remittance (such as dividends, interest, royalties) exceeding USD 50,000 was submitted, although the outbound remittances were under the same contract.
According to State Administration of Taxation & State Administration of Foreign Exchange Announcement No. 19, issued on 29 June 2021, domestic institutions and individuals who want to make multiple outbound remittances under the same contract only need to conduct the tax record filing once before the first remittance payment.
Furthermore, if the tax record filing for payment outside of China has been conducted before the issuance of this Announcement, no record filing for outbound remittance would be required for the subsequent remittances under the same contract.
The existing filing requirements were initially announced in 2013 and most recently modified to reflect the state and local tax bureau merger in 2018. They require companies and individuals to make filing with their in-charge tax bureaus when making outbound remittance in excess of $50,000.
The Chinese government is looking to simplify the filing procedures by providing several enhanced measures, which include filing solely for the initial payment where multiple payments are to be made under a contract; and the extension of the scope of filing exemption, for example when foreign investors re-invest in China by using funds derived from a direct investment in China, then the filing can be exempted.
Finally, a new filing approach is available. In addition to on-site filing, taxpayers may also opt to make the filing online.
Another tax update effective September 1st 2021is the cancelation of the Local Tax Surcharges related to Withholding Value Added Tax (VAT) and Consumption Tax (CT).
Transactions subject to VAT and CT in China are in general required to pay local tax surcharges on top of the VAT and CT. For instance, services provided by overseas entities to Chinese entities may be subject to VAT.
The Chinese entities, as service recipients, may have to withhold VAT as well as Local Tax Surcharges for such transactions.
However, the Urban Maintenance and Construction Tax Law, State Administration of Taxation Announcement No. 26 and Ministry of Finance and State Administration of Taxation Announcement No. 28, effective from 1 September 2021, establishes that import of goods; or labor, services or intangible assets sold by overseas entities or individuals to domestic entities would not be subject to Local Tax Surcharges on top of the related VAT and CT paid.