The article was first published in Asian-Counsel
magazine, issue September 2008
In an effort to ease foreign exchange controls and expedite
payments for services in foreign exchange, the State
Administration of Foreign Exchange ("SAFE") and the
State Administration of Taxation ("SAT") of the
People's Republic of China jointly promulgated the
"Circular on Relevant Issues Concerning the Trial
Implementation of Tax Registration on Outbound Payments for
Service Trade" (Circular Huifa  No.8), effective as
of 1 April 2008.
The SAT subsequently issued Circulars Guoshuihan  Nos.
219 and 258 to provide more specific guidance concerning the
implementation of Circular Huifa  No.8.
Advance tax registration
Prior to 1 April 2008, an enterprise that made an outbound
payment for services in excess of US$ 50,000 had to obtain a
certificate demonstrating tax payment or tax exemption. The new
rules allow enterprises registered in Tianjin, Shanghai,
Jiangsu, Sichuan, Fujian or Hunan ("Trial Area") to
make such payments without first paying taxes as long as they
register the transaction in advance with the competent state
taxation bureau ("STB"). The rules also require that
payment be made by a designated bank located within the Trial
The new rules do not apply to enterprises registered outside
the Trial Area that make payment through banks located in the
Trial Area or to enterprises registered in the Trial Area that
make payment through banks outside the Trial Area.
Transportation (excluding international marine
Construction and installation
Labour service contracting
Financial services (including guaranties but excluding
Computer and information services
Licensing of know-how and royalties
Sports, culture and entertainment services
Other commercial services and government services
Tax registration procedure and tax filing
Enterprises in the Trial Area can take advantage of the new
rules by following the procedure described below:
Complete and submit to the STB four copies of the
"Tax Registration Form for Outbound Payment for Service
Trade for Enterprises" ("Tax Registration
Form") and two copies of the relevant contracts;
Handle outbound payment formalities with a designated
foreign exchange bank by presenting two copies of the Tax
Registration Form affixed with the seal of the STB and other
documents as required by SAFE;
Submit a tax return or an explanation concerning the
outbound payment to the STB and the local tax bureau within
seven days after the advance tax registration.
Enterprises that make several payments in relation to a
single contract must complete advance registration formalities
for each payment; however, photocopies of the contract need
only be submitted to the STB with the first payment.
In case an overseas service provider intends to apply for
preferential treatment under a tax treaty, a Resident Identity
Certificate issued by the relevant taxation authority of the
overseas service provider shall also be submitted to the STB
and/or local tax bureau when the tax returns are filed.
Impact and suggestion
The trial tax regime is intended to provide enterprises
located in a limited number of Chinese jurisdictions a quicker
and more convenient method of paying fees to overseas service
providers. But such enterprises are still required to serve as
tax withholding agents to withhold taxes for the overseas
service providers shortly after making outward payments.
Adhering to the new regime requires enterprises to estimate
the withholding taxes before paying the overseas service
provider. In order to avoid unpleasant surprises when it comes
time to pay the taxes, such enterprises should understand the
position of the STB and local tax bureau on calculating the
relevant withholding taxes before making the outbound
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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