Notice regarding the launch of tax anti-avoidance investigations on remittance of substantial amounts of service fees and royalty payments (Shuizongbanfa [2014] No. 146)

On 29 July 2014, the General Office of State Administration of Taxation (SAT) released an internal notification(“Circular 146”) 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 (hereinafter referred to as “Investigations”). The key focus is the payments made to tax haven and low tax rate countries.

State Administration of Taxation Announcement No. 49

On 27 August 2014 China’s State Administration of Taxation issued Announcement No.49 of 2014 (“SAT Announcement 49”) which is a comprehensive statement of the policies for claiming exemption from Value-Added Tax (“VAT”) under the VAT pilot program in China for exported services. SAT Announcement 49 will become effective from 1 October 2014.

Decree No. 76 of China Ministry of Finance People's Republic of China - Decision of Changes on "Basic Standards for Business Enterprises Accounting Standards"

The decision made by Ministry of Finance to amend the Basic Standards of Accounting Standards for Business Enterprises has been considered and approved by the meeting of the Ministry of Finance, is hereby announced and starts to be implemented from the date of announcement -23 July 2014.

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.