Tax resident enterprises and non-resident enterprises are concepts under the Corporate Income Tax (“CIT”) Law in China. According to the CIT Law, tax resident enterprises are enterprises lawfully incorporated in China, or lawfully incorporated pursuant to the laws of a foreign country (region) but where actual management functions are conducted in China. A tax resident enterprise is liable to pay CIT on the global income basis. However, an enterprise will be considered as a tax non-resident enterprise in China, which is only liable to pay CIT on the incomes generated from the territory of China, when meets the following three requirements:
- The enterprise is incorporated under foreign law or the law of another tax region;
- Its actual management is located abroad;
- It either has an establishment in mainland China or has generated revenue from Chinese sources without having an establishment in China.
Under most circumstances foreign enterprises, including EU SMEs, are categorised as tax non-resident enterprises when they have establishment in mainland China or has revenue generated from China. We hope this guideline helps EU SMEs understand their taxation liability in China as non-resident enterprises.
Therefore, understanding the taxation regime for non-resident enterprises in China is crucial. With the help of practical Case Studies, this guideline provides a clear picture of the requirements non-resident enterprises must follow to be fully compliant with Chinese regulations. In particular, the content of this guideline is structured as follows:
Major Types of Cross-border Income
Non-resident Enterprises and Related Income Types
- Tax Resident Enterprises Vs Non-resident Enterprises
- Active Income (business profit) Vs Passive Income
- Treaty Benefits Vs Default Domestic Tax Treatment Under the CIT Law in China
Permanent Establishment (“PE”) and Service Income
- Purpose and Characters of a PE
- Major Types of PE and Associated Tax Consequence
- Fixed Place PE
- Construction PE
- Service PE
- Agency PE
- Capital Gain
Administration on Tax Treaty Benefits
- Beneficial Owner
- Tax Treaty Benefit Application Formalities
Tax Clearance Formalities and Tax Withholding
- Tax Clearance Requirement from Foreign Exchange Control Perspective
- Tax Withholding Obligation on China Customer
- Contract Registration
- Tax Assessment
- Deemed Profit Rate
Anti-avoidance – Cross-border Transactions with Affiliate Companies
- Transfer Pricing
- General Anti-avoidance Rule (“GAAR”)
- What is BEPS
- Intra-group Royalty and Service Fee
- BEPS Development
About the Authors
Rock graduated from Law School of Peking University, obtained bachelor and master degree of law. He started his professional career in PwC Beijing office since 2002 and later served in Zhonghui Certified Tax Agents and Zhongrui Yuehua Tax Advisory Co., Ltd..
Rock is a member of China Institute of Certified Public Accountants (CICPA). He also obtained the qualification of China Nationwide Lawyer and the Chartered Financial Analyst (CFA). In 2013, he was elected as one of the leading talents of State Administration of Taxation (SAT).
In his professional life, Rock has gained extensive knowledge and experiences in China business and tax advisory services for clients in various industries, including securities company, car financing company, advertising company, energy company, real estate company, IT company, etc. He has been providing China business and tax consulting services in relation regarding cross-border investment, tax risk assessment, restructuring, M&A, tax planning, tax compliance, outsourcing services and other professional service areas in China. In particular , he is a tax advisor with strategic insights on double tax treaties, non-resident administration, international tax policies.
The term “establishment” here is the concept in the domestic law. In the context of double tax treaties, the term “permanent establishment” is generally adopted. There is no major difference between the meaning of the two terms but the term “permanent establishment” is more emphasizing the duration of the establishment.
This report was published during the EU SME Centre in China Phase II (2014-2020), which was funded by the European Union (ICI+/2014/346-276).
The report was drafted in in collaboration with external creators, who worked under service agreements with the Consortium running the EU SME Centre Phase II. The copyrights and intellectual property of this publication belong to the Consortium partner China-Britain Business Council. The latter was authorised by and acted on behalf of the Consortium running EU SME Centre in China Phase II. The China-Britain Business Council, which is currently part of the Consortium running the EU SME Centre in China Phase III, has granted the rights of use of this report to the current Consortium. The report is therefore re-published and made available during the EU SME Centre Phase III.