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Tax Treatment for the Entertainment and Advertising Expenses in the Set- up Period

Announcement of SAT 2012 No. 15 stipulates that during the enterprise set up period, entertainment expenses incurred are tax deductible to the extent of 60% of the expenses incurred, advertising and promotional expenses are tax deductible for the actual expenses incurred.

New Tax Treaty between Netherlands and China

On 31 May 2014, a new agreement between the Kingdom of the Netherlands (hereinafter referred to as “Netherlands”) and the People’s Republic of China (hereinafter referred to as the “PRC”) for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter referred to as the “new DTA”) its protocol were signed in Beijing.

New Tax Treaty between Germany and China

On 28 March 2014, a new agreement between Germany and the People’s Republic of China (hereinafter referred to as the “PRC”) for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter referred to as the “new DTA”) and its protocol were signed. The New DTA and its protocol will enter into force on the 30th day following the day on which both countries notify each other of completion of their respective ratification procedures.

Unification of VAT Levy Rate

Recently the Ministry of Finance, State Administration of Taxation issued a notice: unification of VAT rates. Except for a 5% levy rate applicable to the exploitation of crude oil and gas by Sino-foreign cooperative oil and gas fields, other applicable VAT levy rates of 6% and 4% are unified to 3%, effective from 1st July 2014.

VAT reform exemption exceeds RMB 220 billion, expand to telecommunications

Chinese businesses saved RMB 220.3 billion ($35.5 billion) as of the end of March, due to a pilot scheme to replace turnover tax with value-added tax (VAT).

Company Law of People’s Republic of China (2013 Amendment)

The new amendment to the Company Law comes into force on 1 March 2014. The amendment has lowered the company establishment requirements and reformed the company capital registration regime. We list the major changes from the previous 2005 version.

SAT Delegates Power of Recognizing and Verifying Tax-Resident

The State Administration of Taxation (SAT) recently issued the Circular on Recognizing Tax-Resident Enterprises by Standards of De Facto Management Bodies, clarifying relevant management measures following the delegation of the power of recognizing and verifying tax-resident enterprises to tax authorities at the provincial level and below.

Preferential income tax policy for small and low-profit enterprises

On 8 April 2014, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) issued “Announcement on Preferential Income Tax Policies for Small and Low-Profit Enterprises” ( Caishui 2014 No. 34), which is in effective from 1 January 2014 to 31 December 2016. Based on the announcement, small and low-profit enterprises whose annual taxable income not exceeding RMB 100,000, shall be subject to income tax at the rate of 20% on only 50% of the taxable income.

China Enterprises Annual Inspection is cancelled from 1st March 2014

In China, the long run enterprises inspection system ends in March 2014. The State Administration for Industry and Commerce announced that, since 1st March 2014, annual inspections on registered companies will be replaced by companies' annual reports, which should be available to public inquiry. Companies that fake reports or fail to release reports according to requirements will be punished in accordance with laws.

New double tax treaties between China and the UK, Belgium and France

New double tax treaties between China and the UK as well as between China and Belgium entered into force in December 2013. On 26 November 2013, the government of China and France signed a new Double Taxation Treaty, which could take effect from as early as 1 January 2015.

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