China Issues Announcement on Corporate Income Tax for Non-Resident Enterprises
China’s State Administration of Taxation (SAT) released the “Announcement on Issues Concerning Corporate Income Tax on Labor Services Provided in China by Non-resident Enterprises (Announcement  No. 19, hereinafter referred to as the ‘Announcement’)” on April 19, which is scheduled to take effect on June 1, 2013. Detailed information can be found below.
For the purpose of the Announcement, a “non-resident enterprise” refers to an enterprise either:
- Established according to foreign (regional) law, whose management organization is not based within the territory of China and has no offices or business premises in China, however, the enterprise receives income sourced from Chinese territory; or
- Where offices and business premises have been established, but the relevant income has no actual connection to such offices and premises.
According to the Announcement, for non-resident enterprises dispatching personnel to China to provide labor services (hereinafter referred to as “dispatching enterprises”), if they frequently examine and assess the performance of the dispatched personnel and are wholly or partially responsible for the performance of such personnel, the dispatching enterprises shall be deemed as having established offices or premises in China.
Where the dispatching enterprises are enterprises of a contracting country under a relevant tax treaty, and have relatively fixed and permanent offices or premises to provide labor services, such offices or premises shall be deemed as permanent offices established in China.
The above-mentioned dispatching enterprises shall pay corporate income tax and handle other tax related issues according to the relevant laws and regulations.
However, if dispatching enterprises send personnel to China only to exercise shareholders’ rights in receiving enterprises (enterprises which receive the labor services), or protect the legitimate rights and interests of their shareholders in receiving enterprises, then such enterprises shall not be deemed as having established offices, premises or permanent offices in China. Activities to fulfill the above-mentioned purposes including:
- Providing investment suggestions to receiving enterprises
- Participating in receiving enterprises’ general meetings of shareholders or directors’ meetings