The latest response from the State Administration of Taxation to 32 hot topics of concern for 'going global' enterprises
At 9:30 a.m. on April 14, 2017, Meng Yuying, Deputy Director of the Department of International Taxation of the State Administration of Taxation, visited the website of the State Administration of Taxation, with the theme of 'tax services' the Belt and Road '', and communicated online with netizens on issues of concern to netizens.
Q: We would like to learn about the tax policies of some countries that are interested in investing through tax guidelines. What channels can we obtain the guidelines you mentioned?
[Meng Yuying, Deputy Director of the Department of International Taxation of the State Administration of Taxation] At present, the tax guide for national investment is published in the 'the Belt and Road' column of the tax service on the website of the State Administration of Taxation. Taxpayers can directly log on to the website to download the PDF version of the tax guide for 19 different countries and regions for free. Due to the large amount of professional information in the tax guide, we have also prepared a separate summary for each guide to facilitate the overall understanding of taxpayers Focus on mastering and reasonably obtaining relevant tax knowledge. In the future, we will continue to optimize and update the guidelines, continuously enriching the overseas tax information available to taxpayers.
Q: Our company has established a branch abroad. Can the branch issue a 'Chinese Tax Resident Identity Certificate'? If so, how should we apply?
Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation, can issue an invoice. According to the Announcement of the State Administration of Taxation on Issues Related to the Issuance of the 'Chinese Tax Resident Identity Certificate' (Announcement No. 40 of 2016), domestic and foreign branches of Chinese resident enterprises shall apply for the issuance of the certificate through their head office, that is, the head office shall apply to the county national tax bureau or local tax bureau in charge of their income tax. The application materials include: the application form for 'Chinese Tax Resident Identity Certificate'; Contracts, agreements, resolutions of the board of directors or shareholders, payment vouchers, and other supporting documents related to the income intended to enjoy tax treaty benefits; Registration status of the head office and branch offices, etc.
Q: Our company received income from overseas last year and has already paid taxes overseas. Do we still need to declare it domestically?
Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation, still needs to declare overseas income. Our country's corporate income tax system adopts the principle of 'person plus territory'. According to the current regulations on corporate income tax, resident enterprises should be obligated to pay corporate income tax on their global income to our country; Non resident enterprises that establish institutions or premises within the territory of China shall be liable for corporate income tax in China on income derived from sources within the territory of China and income incurred outside the territory of China but actually related to their institutions or premises. Therefore, resident enterprises that obtain overseas income and non resident enterprises that have established institutions or establishments within China and have actual connections with overseas income need to declare and pay taxes to China. At the same time, in order to solve the problem of dual taxation of overseas income both domestically and internationally, enterprises can apply for overseas income tax credits in accordance with regulations.
Q: Our overseas branch is not operating well and has been experiencing losses for two consecutive years. How can we make up for these overseas losses before tax?
According to current regulations, when enterprises summarize and calculate the payment of corporate income tax, the losses of overseas business institutions shall not be offset against the profits of domestic business institutions. This is mainly to avoid the phenomenon of duplicate compensation for the same loss or the need for complex restoration and reduction credits. Therefore, according to the requirement of the overseas income tax credit policy that is not divided by country, the losses incurred by an enterprise's overseas projects can only be compensated by the profits of other projects in the country or future annual profits. At the same time, according to the 'Guidelines for the Operation of Tax Credit for Overseas Income of Enterprises', if the total domestic and foreign income of an enterprise in the same tax year is positive, the losses incurred by its overseas branch, as well as the unrecovered portion (i.e. non actual losses) due to the aforementioned limitations on carrying forward and making up, can be carried forward and made up indefinitely in the branch in the future. In another case, if the sum of the current domestic and foreign profits and losses of the enterprise is negative, the actual loss of the part where the losses of the overseas branch exceed the profits of the enterprise shall be compensated for according to the 5-year period of the Enterprise Income Tax Law. The non actual loss of the part that does not exceed the profits of the enterprise can still be carried forward indefinitely for compensation.
Q: We are a company registered overseas, but our group headquarters is located in China, and our management organization is also located in China. Are we a non resident or resident in terms of taxation?
[Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation] In your case, it depends on whether you meet the prescribed conditions in order to determine your resident status. According to the provisions of the Enterprise Income Tax Law and its implementation regulations, enterprises with actual management institutions located in China are also resident enterprises. For Chinese controlled enterprises registered overseas, they must meet four conditions simultaneously in order to apply for recognition as resident enterprises. Firstly, the senior management personnel and their senior management departments responsible for implementing daily production, operation and management operations are mainly located in China; The second is that the financial decisions of enterprises, such as borrowing, lending, financing, financial risk management, and personnel decisions, such as appointment, dismissal, and compensation, are determined by institutions or personnel located within China, or require approval from institutions or personnel located within China; Thirdly, the main assets, accounting books, company seals, minutes of board of directors and shareholder meetings of the enterprise are located or stored within the territory of China; Fourthly, at least half of the directors or senior management members of the enterprise with voting rights often reside within China. You can compare the above conditions based on the actual situation of the enterprise to see if it constitutes a tax resident in China. If the conditions for resident enterprise recognition are met, an application for resident enterprise recognition must be submitted to the competent tax authority in the place where your company is registered as a major investor in China. After the competent tax authority makes a preliminary judgment on the identity of the resident enterprise, it can be submitted to the provincial tax authority for confirmation.
Q: We are a private enterprise that has enjoyed the benefits of national policies in recent years, and our business scale has gradually expanded. Now we are also considering 'going out' to 'test the water'. What tax issues do we need to pay attention to?
[Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation] Your question is very good, indicating that you are aware of the importance of cross-border business tax risks. I would like to give you some guidance. The forms of 'going global' for enterprises vary. Some companies need to make green space investments, some are engaged in overseas mergers and acquisitions, some are contracted engineering projects overseas, or build financing platforms overseas. In terms of organizational structure, some adopt a total score model, some adopt a parent-child model, and so on. Different types of enterprises have different tax considerations. In general, it is necessary to do the homework of 'three axes'. Firstly, it is necessary to understand the tax policies and management situation of the host country. Secondly, it is necessary to understand our domestic tax regulations related to overseas investment and operation. Thirdly, it depends on the tax agreements signed between our country and the other party. If it is difficult for the tax personnel of the enterprise to complete the above work, they can use the professional force of intermediary agencies to do it. In short, it is necessary to do a good job in tax planning and control tax risks. Large international multinational corporations generally have a relatively complete tax management system. At present, there are certain differences between Chinese enterprises and these large multinational corporations in this regard. We suggest that Chinese enterprises pay sufficient attention to tax risk management in the process of 'going global', establish systems, institutions, and allocate talents to better participate in international market competition and build modern multinational enterprises.
Q: I heard that our country is making rapid progress in international tax collection and management cooperation. We can exchange information with tax authorities in other countries. Will this increase the tax burden on 'going global' enterprises?
[Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation] I think what you are asking is whether the tax authorities will overcharge 'going global' enterprises due to this information. The exchange of information between the tax departments of the two countries will not result in double taxation for cross-border taxpayers, nor will it increase the tax obligations that taxpayers should have fulfilled, nor will it bring additional tax burdens. However, for taxpayers who intentionally conceal their income or evade their tax obligations, the tax authorities have the obligation to verify whether the taxpayers have truthfully declared and paid taxes based on this information. This is the maintenance of the country's tax rights and interests, as well as the protection of legitimate and law-abiding taxpayers' rights and interests.
Q: We are a company that has applied for recognition as an overseas registered resident enterprise. Are the dividends and bonuses we receive from other domestic resident enterprises exempt from tax?
Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation, has made clear regulations on this issue. Starting from the year when overseas registered Chinese holding enterprises are recognized as resident enterprises, the equity investment income obtained from other resident enterprises in China from previous years is limited to dividends, bonuses, and other eligible equity investment income after January 1, 2008.
Q: How long does it take for the tax authorities to complete the export tax refund procedures after the export enterprise declares the export tax refund?
In 2016, the State Administration of Taxation revised the 'Classification Management Measures for Export Tax Refund (Exemption) Enterprises'. The new method divides export enterprises into four categories. The first category of enterprises with high tax compliance and good reputation enjoy the 'refund before review' policy. The tax authorities complete the export tax refund procedures within 5 working days, the second and third categories of enterprises complete the export tax refund procedures within 10 and 15 working days respectively. The fourth category of enterprises with low tax compliance and poor reputation must undergo strict review before applying for tax refund, Complete export tax refund procedures within 20 working days.
Q: Our company provides vessel time charter services, and domestic lessees use the vessel for international transportation services between Southeast Asia. May I ask if the service we provide can enjoy a zero value-added tax rate policy?
According to Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation, the Notice of the Ministry of Finance and the State Administration of Taxation on the Comprehensive Pilot Program of Replacing Business Tax with Value Added Tax (Cai Shui [2016] No. 36) stipulates that units and individuals within the territory of the People's Republic of China provide time and wet rental services to domestic units or individuals. If the lessee uses the leased means of transportation to provide international transportation services and Hong Kong, Macao, and Taiwan transportation services to other units or individuals, The lessee shall apply a zero value-added tax rate. Domestic units or individuals providing time and wet lease services to overseas units or individuals shall be subject to zero value-added tax rate by the lessor. Therefore, the domestic lessee provides international transportation services by leasing ships from your company through time charter, and the lessee applies a zero value-added tax rate.
Q: Can enterprises only enjoy tax credits for their overseas income if they obtain it from a country that has a tax treaty with China?
Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation, is not. According to the Enterprise Income Tax Law and its implementation regulations, the overseas income tax that enterprises can deduct is not limited to the income tax already paid in countries and regions that have signed double taxation agreements with China. Therefore, the corporate tax or income tax paid by overseas investment enterprises in countries and regions that have not yet signed double tax avoidance agreements can still be offset in calculating China's tax payable in accordance with relevant domestic laws and regulations. However, it should be noted that when it comes to concession credits, there must be clear provisions in the tax treaty to apply.
Q: Our company has income from multiple overseas projects. What are the general procedures for enjoying tax treaty benefits in other countries?
Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation, stated that the procedures for enterprises to enjoy treaty benefits in the source country depend on the specific national and regional regulations. According to the information we have, there are currently various tax jurisdictions around the world that have different modes of implementing tax treaties, including approval, filing, determination of withholding agents, and self enjoyment. In countries and regions that implement approval systems, some implement taxation first and tax refunds after approval, such as Belgium; Partial implementation of prior approval, with the UK and Germany adopting this model when dealing with tax treaty benefits for certain types of income. Countries and regions that implement a filing system, such as South Korea, can enjoy tax treaty benefits when non resident taxpayers go through the filing procedures with tax authorities. It is also a common model for non residents to determine whether they meet the conditions for enjoying tax treaty treatment and withhold taxes accordingly by the withholding agent or payer, such as in the United States and Singapore. In addition, tax jurisdictions such as Hong Kong do not have specific procedural requirements for non residents to enjoy tax treaty benefits, which can only be indicated during tax declaration.
Q: Hello experts! I am a student who is about to study abroad. Will it also involve the issue of tax treaty benefits?
Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation, is currently receiving more and more students studying abroad. It is also necessary to pay attention to cross-border tax issues involving individuals. The student clauses in the tax treaties signed by our country provide certain protection for international students, namely tax-free treatment. Usually, there are three conditions for this exemption, assuming that the study destination is Country A: Chinese students should be tax residents of China before going to Country A; Chinese students' tax-free income should come from sources outside of country A; The tax-free income of Chinese students should only be used for the purpose of maintaining their livelihood, education, or training.
It is worth noting that the tax treaties signed between China and some countries impose time limits on the tax exemption benefits for students. Although the tax treaty between China and the United States does not limit the duration of tax exemptions for students, domestic law in the United States stipulates that international students holding F1 visas usually become tax residents of the United States after five years and cannot continue to enjoy the tax exemptions provided by the Sino US treaty. It is recommended that international students carefully study the tax agreements between China and the host country, and if necessary, seek the advice of local tax intermediaries to protect their interests to the greatest extent possible.
Q: We have learned that starting this year, new management regulations will apply to the related party declaration and contemporaneous data submission of enterprises. How can we determine if a company needs to fill out a country report?
According to the Announcement of the State Administration of Taxation on Improving Related Party Declaration and Simultaneous Data Management (Announcement No. 42 of 2016), the situation where a country report needs to be submitted can be understood from two levels: firstly, in general, there are two types of enterprises that need to submit a country report, The first category is that resident enterprises are the ultimate controlling enterprises of multinational enterprise groups, and the total amount of various types of income in their previous fiscal year's consolidated financial statements exceeds 5.5 billion yuan. The second category is that resident enterprises are designated as reporting enterprises for national reports by multinational enterprise groups. The second is that in special circumstances, it can also be divided into two categories. The first category is exemption, that is, multinational enterprise groups whose ultimate controlling enterprise is a Chinese resident enterprise whose information involves national security can be exempted from filling in some or all of the country reports in accordance with relevant national regulations. The first category is situations where although the general conditions are not met, a country report still needs to be submitted, If the multinational enterprise group to which the enterprise belongs is required to prepare a country report in accordance with relevant regulations of other countries, and China has not obtained the country report of the group due to three reasons listed, the tax authorities may require the enterprise to provide a country report when conducting special tax investigations. For detailed regulations, you can refer to the provisions of Announcement 42 mentioned earlier for comparison.
Q: Our company has overseas income that can enjoy concession credit. How should we calculate the tax amount that can be enjoyed during the declaration?
According to the 'Guidelines for the Operation of Tax Credit for Overseas Income of Enterprises' (Announcement No. 1 of 2010 of the State Administration of Taxation), Meng Yuying, Deputy Director of the International Taxation Department of the State Administration of Taxation