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China - Tax
Author Topic:   Withholding tax
Name supplied
 posted 24 October 2003 03:11 PM           
We are a HK company without any representative office in Mainland China. If we want to enter into a RMB contract with a company in China to provide consulting services, do we need to pay withholding tax or any other kind of tax when client remit the payment to HK? Is there any restriction?

Moderator
 posted 24 October 2003 03:12 PM           
For foreign and Hong Kong companies that have no establishment or venue in China but derive incomes from sources in China, the income beneficiary (i.e. the foreign or the Hong Kong company) should be the taxpayer and the payer (i.e. the client company in China) should be withholding agent. The tax should be withheld from the amount of each payment by the payer. The withholding agent should within five days turn the amount of taxes withheld on each payment over to the State Treasury. In China all foreign exchange receipts and payments must be deposited into accounts opened with designated banks or sold to these banks.

Kenny
 posted 08 November 2003 09:56 AM           
I have a similar question. Would you please advise the detail procedure and documents required for the PRC client company to remit payment to HK as they do not have such experience before? Do they need some kind of government authorization in the first place? Is there any ceiling amount to remit out of PRC? Are the procedure and documentation requirements the same if the contact is in HKD/USD?

Moderator
 posted 08 November 2003 09:58 AM           
All legitimate incomes of foreign companies and personnel may be converted into foreign currencies and remitted out of China at banks designated by the State Administration of Foreign Exchange (SAFE) in the Mainland upon presentation of valid proofs, invoices and payment settlement of withholding tax, if any. Although there is no ceiling to the amount of remittances, the SAFE is authorized to carry out spot check of remittances amounting to an equivalent value of US$100,000 or more, or remittances deemed suspicious, to determine their authenticity.

Name supplied
 posted 25 November 2003 09:50 AM           
We assume from the above that withholding tax is the value added tax (VAT) levied on foreign companies who supply services to the Mainland. Also is it correct to say that VAT is kind of turnover tax in China?

Moderator
 posted 25 November 2003 09:51 AM           
No. Withholding tax is levied on foreign companies providing services to companies in China, including the use of intellectual property rights, royalties etc., whereas VAT in a way is turnover tax levied on the increased value of commodities at different stage of production or circulation, or on the value-added of commodities.

Name supplied
 posted 29 May 2004 11:03 AM           
Our group has two companies. Company A is an owner of some patents and registered in HK. Company B is a "foreign wholly-owned" manufacturer in PRC. Company B has to pay patents to Company A. Is Company A liable to withholding tax in PRC? If yes, what is the rate? THX.

Moderator
 posted 29 May 2004 05:45 PM           
Company A is the payer of tax as it derives income from royalties. Company B in China will have to withhold the income tax amount of each payment and pay to the State Treasury. According to TDC's Guide to Doing Business in China, the income is taxable on each payment. For remuneration received in each payment of less than RMB 4,000, a deduction of RMB 800 is allowed for expenses. For each payment of RMB 4,000 or more, a deduction of 20% is allowed for expenses. The remaining amount will be taxed at 20%.

Name supplied
 posted 20 September 2004 04:07 PM           
1) Is withholding tax only applicable to payments made by companies within China to companies outside of China? 2) How much is the withholding tax?

Moderator
 posted 23 September 2004 09:59 AM           
In general withholding tax refers to income tax on foreign invested enterprises and foreign enterprises, and applies to those that have no establishments or venues in China but derive incomes form profits, interest, rentals, royalties and other incomes from sources in China. The income beneficiary shall be the taxpayer and payer shall be the withholding agent. An income tax of 20% will be withheld on such incomes by the agent who should, with five days, turn the amount of taxes on each payment over to the State Treasury and submit a withholding income tax return to the local tax authority.

Allen Wong
 posted 02 October 2004 11:12 AM           
How about foreign "financing (or loan)"? What will be the rate for VAT, if any?

Moderator
 posted 02 October 2004 04:26 PM           
If the financing or loan would incur interest payment, withholding of income tax, not VAT, will apply. Please also see above.

Felix Chan
 posted 27 October 2004 05:36 PM           
Please kindly give us advice. We need help on the following,
Current situation: We are a HK limited company with a representative
office in Beijing. We cannot issue invoice in BJ, we cannot issue invoice in RMB from HK. We can issue US$ invoice from HK mother company to our clients in BJ.
Problems: Withholding tax when BJ Clients transfer US$ into HK account. They agree to pay for the tax. What will be the rate of the withholding tax? Can I add that to the contract that clients will pay for the withholding tax if they agree, or it will create legal problems in future?
If the contract is signed US$ 10000 with reference to the HK bank account without mentioning the withholding tax. Who should be paying for the withholding tax? Shouldn't be US$10000 should have arrived our company account in HK.

Name supplied
 posted 10 November 2004 10:56 AM           
We have the same case and want to know what can we do? We are a
limited company in Hong Kong and we provide consultancy service to our
client in Shanghai. Basically all our works are in Hong Kong. We send an USD invoice to our client monthly from Hong Kong to Shanghai. Last year, we don't need to pay any tax but they just informed us they will withhold the tax from the remittance from now on. Please kindly advise the reason. thanks

Moderator
 posted 11 November 2004 09:28 AM           
For foreign company that has no establishment or venue of business operation in China but derives incomes from profits, interests, rentals, royalties and other incomes from sources in China, the income beneficiary should be the taxpayer and the payer should be the withholding agent. The tax should be withheld from the amount of each payment by the payer.

sh Lim
 posted 22 November 2004 10:42 AM           
Holding co A (a company registered in Malaysia) has a wholly
foreign owned subsidiary company operating in China. A lot of the works are carried out by personnel from Company A. To cover the cost, Company A will bill Company B (Moderator: is it in China?). If Malaysia has a double taxation agreement with China, does the payment still attract withholding tax? Your advice on this is appreciated.

Moderator
 posted 22 November 2004 05:53 PM           
The withholding tax is levied on the holding company A in Malaysia who derived income from services provided to its subsidiary in China. It appears that in this case the double taxation agreement does not apply.

Arthur Chang
 posted 26 January 2005 02:57 PM           
We regularly use some overseas firms to provide consultancy service for our operations in China. Many of the consultants are very unhappy when we pay their bills with extracting of withholding tax. Are all kinds of consultancy service are subject to the withholding tax? Will the withholding tax paid in China be used to offset the tax payble in their home countries? Thank you

Moderator
 posted 27 January 2005 06:17 PM           
Please see some of our replies to users of this Forum in regard to withholding tax in China. You can see that this tax applies to foreign enterprises or individuals who derive incomes from sources within China. In the case of Hong Kong which has regulations on avoidance of double taxation, Hong Kong employees may apply for deduction for income tax paid in China when filing their salaries tax return in Hong Kong by providng evidence of tax payments in China.

Jub
 posted 21 February 2005 05:54 PM           
We are a holding company registered in HK. The company has a contract to pay professional fee to a company in Thailand. Do we need to deduct withholding tax for this payment and what is the percentage of withholding tax. When does the company has to pay withholding tax to Revenue Dept.

Moderator
 posted 22 February 2005 11:12 AM           
If your company has paid a fee to a company in Thailand for the professional service performed in China, and the beneficiary has no business establishment in China, you are the withholding agent and should withhold the tax amount equivalent to 10% on such payment. The amount of taxes withheld should be paid to the State Treasury with five days together with a tax return.

Dan Margo
 posted 11 March 2005 10:06 AM           
My company is in the process of setting up a WOFE Trading company
in Shanghai and need to choose between setting up a HK or UK holding
structure. The choice seems to come down to the amount of withholding tax payable in UK and HK on dividends repatriated from China. Can you confirm the value of withholding tax on dividends repatriated from China to HK and UK?

Moderator
 posted 13 March 2005 05:05 PM           
Foreign enterprises that have no establishment or venue in China but derive profits, interest, rentals, royalties and other incomes from sources in China have to pay income tax of 10% on such income. These amount should be withheld by the payer (the company in China) and turn the amount to the State Treasury. There is no difference in the withholding tax on dividends remitted from China to either Hong Kong or UK.

Name supplied
 posted 02 September 2005 04:12 PM           
Could you please advise if net after tax profits (i.e. dividends) paid by a foreign investment enterprise to its overseas holding company are exempt from PRC withholding tax or subject to 10% withholding tax?

Name supplied
 posted 02 September 2005 04:12 PM           
Could you please advise if net after tax profits (i.e. dividends) paid by a foreign investment enterprise to its overseas holding company are exempt from PRC withholding tax or subject to 10% withholding tax?

Steven Miao
 posted 05 September 2005 09:32 AM           
According to prevailing China tax regulations, the dividends paid to its foreign investors are exempted from PRC 10% withholding tax.
Regards,

Steven Miao
stevenmiao@vip.sina.com
Consultant for China Tax and Business

ET
 posted 30 November 2005 05:03 PM           
Hi. I would like to ask in the event that Co A based in Singapore wishes to sign a consultancy contract with a china based developer
directly, even though Co A has a subsidiary in China.

Qn 1: Does it matter whether the payment is to be made in RMB or SGD? Is it true that if payment is made in RMB, SAFE will not be involved and procedures of payments will be simplified?

Qn 2: Co A will suffer withholding tax of 10% on each payments received. Will Co A suffer another round of tax in Singapore on the same china sourced income?

Qn 3: What kind of arrangement will attract less tax and hassle?

Thks.

Moderator
 posted 05 December 2005 10:18 AM           
1. It does not really matter if the payment is made in RMB or foreign currency. Remittances of foreign fund can be arranged effectively with valid documents. 2. In Hong Kong, the answer is yes. 3. If you can take out an effective and legitimate contract with the client there should not be any hassle with the service and payment from the mainland.

name supplied
 posted 06 March 2006 01:10 PM           
We are going to sign a management consultancy contract with a company in the Mainland. We do not have establishment there. Please confirm what the Withholding Tax Rate is for payment received from Mainland to our HK Account. I've seen 10 % and 20 % in this Forum. Please also confirm if this rate applies to the whole remittance amount, as I've read from this Forum deduction is allowed. Thank you very much.

Moderator
 posted 25 March 2006 05:26 PM           
In general the 20% will apply. But some concessions can be offered to lower the tax to 10% for new and high technology projects. In some case the tax would be assessed individually. We have no specific information on the deductibles which can vary from one project to another.

Colin
 posted 28 April 2006 10:27 AM           
Hello,

Our Canadian company charges clients in HK and China for access to our
web-based platform.

Q1. What rate of withholding tax would be applicable?

Q2. Is there a tax treaty between China/Canada to avoid double taxation?
Is there a reciprocal tariff agreement between China/Canada?

Q3. Is subscription based income (fee to access/use flatform) qualify as
Royalties or property leasing?

Q4. Is our "subscription" based income subject to other taxes?

Thank you in advance for your prompt reply.
Best regards,
Colin

Moderator
 posted 12 May 2006 02:51 PM           
Q1: The applicable rates of withholding tax can range from 10 to 20%;
Q2: China has an Income Tax Agreement with Canada signed in 1986.
Q3: Subscription income can be termed 'rental' or 'other income'.
Q4: Not too sure.

Moderator
 posted 08 September 2006 11:55 AM           
According to the new Arrangement for the Avoidance of Double Taxation signed in August 2006 by the PRC and the Hong Kong SAR governments, the top rates for withholding tax for dividends received by a Hong Kong resident from investments in Mainland enterprises will be reduced from 20% to 10%, and a Hong Kong business from 10% to 5% if the Hong Kong business holds at least 25% of the capital of the Mainland enterprise.

The top rates for withholding tax for interest received by a Hong Kong resident from the Mainland will be reduced from 20% to 7%, and a Hong Kong business from 10% to 7%.

The top rates for withholding tax for royalties received by a Hong Kong resident and a Hong Kong business from the Mainland will also be reduced from the respective 20% and 10% to 7%.

name supplied
 posted 19 September 2006 10:36 AM           
We are a HK company and perform an express delivery service to a Mainland company. The Mainland company intends to remit payment to HK. Questions: 1) Is this subjected to the withholding tax? 2)Are there any compulsory documents to be submitted to Bank from the Mainland Company? Pls advise the submission procedures. 3)Does the Advoidance of Double taxation signed in August 2006 apply and what's the applicable rate of withholding tax?

name supplied
 posted 19 September 2006 05:45 PM           
We render the express delivery service & warehousing to a PRC company which intends to remit the payment to HK. Will this attract withholding tax which should be borne by HK? If yes, what is the appliable rate? Will the Arrangement for the Avoidance of Double Taxation signed in August 2006 apply in this case? Also, do we need to sign a contract with the PRC company for remittance purpose?

questioner
 posted 22 September 2006 11:20 AM           
I want to pay by TT by our Guangzhou Co. to HK vendor in HK$. Is there a withholding tax in Guangzhou? If yes, is there an exemption? Will the HK vendor be levied any other taxes levied by PRC authority?

name supplied
 posted 04 October 2006 10:38 AM           
Our company in HK holds a majority stake (70%) in an EJV in China which operates in the property sector. The EJV has been paying property taxes and profit taxes. Our company is negotiating to sell a larger than 25% stake of the EJV interest to another HK company. The company expects to make a gain on the share interest transfer since property price has increased by so much in China in the past years. The question is, does our company needs to worry about paying withholding tax at all since both the transferor and transferee companies are offshore companies from China's perspective. If such tax is leviable, can you suggest how it will be calculated and who should be sending the cheque to the State Treasury and file a tax form? Also, any other taxes that the HK seller should know? Many thanks.

Moderator
 posted 11 October 2006 09:36 AM           
for Questioner: Recently a new Arrangement has been reached between China and Hong Kong for the Avoidance of Double Taxation which stipulates the tax arrangement for payments of interests, dividends, profits etc. by one side to the other side. Please click here for details.

Moderator
 posted 13 October 2006 11:01 AM           
for name supplied 19 Sept: Any foreign company which has no establishment or place in China but derives profits, interest, rental, royalties or other income from China, or which, though it has an establishment or place in China, derives such income and the income is not effectively connected with such establishment or place, shall pay an withholding income tax of 10 percent on such income.
In August 2006, the China and the Hong Kong Government signed a comprehensive arrangement for the avoidance of double taxation to replace the one signed in 1998. The new arrangement will take effect next year (1 January 2007 and 1 April 2007 in the Mainland and Hong Kong, respectively).

The principal features of the new arrangement include withholding tax on dividend, royalty and interest and other subjects. Please click here for the details provided by the Inland Revenue Department of Hong Kong Government.

Moderator
 posted 30 October 2006 04:32 PM           
for name supplied 4 Oct: Presently dividends received by foreign investors from a foreign investment enterprise in the Mainland are currently exempt from Mainland taxation. In August 2006 the Chinese and Hong Kong have reached a new comprehensive arrangement for the avoidance of double taxation to be effective on January 1, 2007 (for China), April 1, 2007 (for Hong Kong), reducing the top rates of withholding tax levied on payment of dividends, royalties and interests to Hong Kong residents and companies. Details can be found in the Hong Kong Inland Revenue Department press release.



      
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