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Should Royalties be charged into dutiable value of import goods or not?

The question whether royalty should be charged into dutiable value of import goods or not still remains the top priority to overcome for China Customs Authority (CCA). Their interpretations on nature criteria, charge base and apportionment methods for the royalties also differ from multinational corporations, so a reasonable planning and effective communications in advance with CCA is of upmost importance to investors when setting up their business in China.

“Examination and approval for confirmation of encouraged foreign-invested enterprise projects” is cancelled

The China State Council had announced that effective from May 01, 2015, examination and approval for confirmation of encouraged foreign investment projects in China (Letter of Confirmation) is no longer required in order to speed up application process of duty-free imported equipment. How do we should response to this change?
This “Letter of confirmation” has long been an important part in the process course of duty free equipment. What impacts would this change bring to us?

MOF Seeks Comments on Administrative Measures for Accounting Files

The Ministry of Finance ("MOF") has recently released the revised Administrative Measures for Accounting Files (Draft for Comment) (the "Draft') for public comment by June 27, 2015.

GAC Clarifies Matters Concerning Reduction/Exemption of Surcharges for Late Payment of Duties

The General Administration of Customs ("GAC") has issued the Announcement on Clarifying Matters concerning the Reduction/Exemption of Surcharges for Late Payment of Duties (the "Announcement"), which came into force on the date of issuance.

Notice regarding Corporate Income Tax (CIT) issues related to fees paid to overseas related parties (SAT Announcement [2015] No. 16)

On 29 July 2014, the State Administration of Taxation (SAT) released Shuizongbanfa [2014] No. 146 (“Circular 146”, i.e. Notice regarding the launch of tax anti-avoidance investigations on remittance of substantial amounts of service fees and royalty payments) to urge tax authorities at all levels to carry out extensive tax investigations on substantial amounts of service fees and royalties payments made by domestic enterprises to their overseas related parties from 2004 to 2013. Further to Circular 146, on 18 March 2015, the SAT released SAT Announcement [2015] No. 16 (“Announcement 16”) emphasizing the arm’s length principle and economic benefits; particularly, it sets out the determining factors of non deductibility of fees paid to overseas related parties by PRC enterprises (hereinafter referred to as the “domestic enterprises”), it also lays out other related tax administration and collection issues.

Notice regarding the “Foreign Investment Industrial Guidance Catalogue (Revised in 2015)” (NDRC/MOFCOM Order [2015] No. 22)

The Foreign Investment Industrial Guidance Catalogue (hereinafter referred to as “Catalogue”), serving as the basis of applying relevant policies to foreign investment projects, stipulates encouraged, restricted and prohibited foreign investment projects; projects not covered in the Catalogue shall be permissible. Currently, foreign investment projects shall be subject to administration according to the modes of general record filings and limited approval. Except for encouraged and restricted foreign investment projects subject to Chinese holding requirements that shall be subject to approval, other projects shall be subject to a record filing according to the principle of consistent supervision and administration of domestic and foreign investment projects. Record filing formalities for most foreign investment projects shall be handled by local governments. Qualifying encouraged foreign investment projects shall be eligible for exemption from Customs Duties on imported equipment. Encouraged foreign investment projects in western regions can enjoy a reduced Corporate Income Tax (CIT) rate of 15%.

Significant improvement on the corporate income tax treatments for restructuring transactions

In March 2014, the State Council issued a circular, Guofa [2014] No.14 (Circular 14)1, urging various government bodies to improve their policies so as to encourage mergers and acquisitions (M&A) in China. In response to Circular 14, the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) recently released two new circulars Caishui [2014] No.109 (Circular 109) and Caishui [2014] No.116 (Circular 116) to substantially improve the corporate income tax (CIT) restructuring rules.

The clean-up of local tax and fiscal preferential policies

In order to follow the principle of the Third Plenary Session of the 18th Central Committee of the Communist Party of China (CPC) (the Third Plenum), the State Council and Ministry of Finance (MOF) respectively released circulars Guofa [2014] No.62 and Caiyu [2014] No.415 in November and December 2014, urging various local governments to clean-up and standardize local tax and fiscal incentives.

New Tax Treaty between Switzerland and China

On 25 September 2013, a new agreement between Swiss Federal Council (hereinafter referred to as “Switzerland”) and the People’s Republic of China (hereinafter referred to as the “PRC”) for the Avoidance of Double Taxation with respect to Taxes on Income and Capital. (“new DTA”) was signed to replace the agreement signed in 1990 (“existing DTA”). The new DTA entered into force on 15 November 2014 and is effective for the income derived on or after 1 January 2015.

Clarification on Corporate Income Tax (CIT) Incentives for Advanced Technology Service Enterprises (ATSE)

The Ministry of Finance, the State Administration of Taxation, the Ministry of Commerce, the Ministry of Science and Technology and the National Development and Reform Commission jointly issued Caishui 2014 No. 59 (Circular 59) on 8 October 2014. Regarding the CIT incentives for ATSE, Circular 59 updates Circular 65 by extending the incentive expiration date to 31 December 2018 and relaxing recognition criteria on income derived from offshore outsourcing service.

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