This alert is intended for non-PRC owners and charterers who may
or have time-chartered vessels to PRC entities.
There are two PRC tax regimes that levy taxes against hire
payments made by PRC time-charterers, the Enterprise Income Tax
("EIT") and the Business Tax ("BT").
Previously, hire payments made to foreign (non-PRC) entities had
enjoyed the benefit of certain long-standing exemptions from these
PRC tax regimes. However, these exemptions were removed in recent
years following the introduction of new laws and regulations in
relation to EIT and BT. Unfortunately, a recent flurry of enquiries
suggests that these changes have not yet become common knowledge
within the shipping community; which might leave some owners
inadequately protected by the terms of any time-charter
It is therefore strongly suggested that any non-PRC entity
should acquaint themselves with the operation of these tax regimes
before time-chartering a vessel to PRC entities, noting inter alia
(a) both regimes impose a duty on the PRC charterer to withhold
tax from each tranche of hire paid (which might together amount to
15% of the hire paid);
(b) the consequences of a PRC charterer failing to withhold tax,
or failing to account to the PRC tax bureau for the same, may lead
to sanctions being imposed upon the PRC charterer and the owner (as
the tax-payer); and
(c) aside from the imposition of fines for late payment, the
available sanctions include enforcement measures that allow for
recovery of unpaid tax from any payments of hire by another PRC
charterer to the owner.
Further, if under the charterparty the tax liability falls to
the charterers, the owners should be careful to ensure that the
mechanism by which this is addressed operates so that: (i) the
owner receives the agreed amount of hire (without deduction for the
tax levied); (ii) the charterer accounts to the tax bureau for the
tax levied; (iii) it will not be considered to amount to tax
evasion; and (iv) the owner has the benefit of an indemnity from
Whilst we are able to advise clients on the drafting or
interpretation of charter-party terms in relation to these tax
regimes, this alert is not intended to be and should not be
construed in any way as providing tax advice. However, we are able
to assist in obtaining tax advice for clients.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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