China: China Strengthens Tax Administration Of Non-Resident Project Contractors And Service Providers

Last Updated: 1 September 2009
Article by Bernd-Uwe Stucken

China's State Administration of Taxation ("SAT") has published a series of circulars on tax administration for non-resident enterprises ("NREs")1. These measures reflect SAT's effort to strengthen the supervision of foreign related taxation.

On 20 January 2009 SAT issued its 19th Decree 2 ("No. 19 Decree"), taking effect from 1 March 2009, to administer the taxation of NRE project contractors and service providers in China. To regulate NRE annual enterprise income tax filing, SAT issued its 6th Circular 3 ("No. 6 Circular") on 22 January 2009, with retrospective effect to 1 January 2008.

1. Contracting Projects and Services

No. 19 Decree applies to NREs engaged in the following activities in China:

1) contracting projects including construction, installation, assembly, repair, decoration and exploration, and other construction related activities;

2) services including processing, repair, transport, warehousing, leasing, consulting, design, culture and sports services, technology, education and training, tourism, entertainment, and other services.

2. Tax Registration

Previously, although a NRE had to complete tax registration at the location where its taxable activities occurred, the authorities did not enforce this requirement because they lacked information. No. 19 Decree requires all NRE project contractors and service providers in China, and their corresponding outsourcers in China ("Chinese Outsourcers") to complete tax registration. These requirements apply to key stages of the projects and services, including contract signature, contract amendment, invoicing, completion of the projects or services, etc. In this way, the tax authorities can gather information comprehensively on NREs' taxable income and other relevant information.


A NRE project contractor or service provider in China must register with the tax authority where the project is located within 30 days of the signing of the relevant agreement.

Within 15 days after the project or service is completed, the NRE must submit copies of evidencing documents - such as completion and acceptance certificates - and apply for de-registration to the same authority.

Chinese Outsourcers and Withholding Agents

A Chinese Outsourcer must file certain documents with its competent tax authority within 30 days of concluding an agreement with a NRE and within 10 days of any change to the contract. The documents include the NRE's tax registration certificate and the agreement.

If the Chinese Outsourcer receives any invoice or other payment voucher from the NRE, it must submit a copy of the document to the competent tax authority.

Any Chinese enterprise or individual that is obliged to act as the withholding agent of the NRE must complete withholding tax registration within 30 days of the date on which its withholding obligations arise.

3. Tax Filing and Payment

No. 19 Decree covers the filing and payment of Enterprise Income Tax ("EIT"), Business Tax ("BT") and Value Added Tax ("VAT").


No. 19 Decree requires NREs to file EIT quarterly and annually, and settle EIT payment on completing a project.

However, if a NRE has an establishment or place of business in China, and if it contracted on projects or provided services in China in 2008, Circular 6 requires it to complete its annual EIT filing and clearance for 2008 before 31 May 2008, unless it meets any of the following conditions for exemption:

  • It contracted projects or provided services in China for less than 1 year, and terminated relevant business activities in the middle of a year, and all taxes have been paid;
  • It has completed tax deregistration during the annual EIT filing period; and
  • It is approved by the tax authorities to be exempted from annual EIT filing.

Further, a NRE that fails to submit the materials required by No. 19 Decree in the EIT filing may not be entitled to the preferential treatment (e.g. for permanent establishment) available under tax treaties.

BT and VAT

If a NRE with BT or VAT taxable activities has a place of business in China, it must file and pay BT or VAT itself. If it does not have a place of business, its agent or Chinese Outsourcer should complete the tax filing and withhold tax payments.

Further, the Chinese Outsourcer must submit relevant documents (e.g. photocopies of the NRE's commercial and tax registration certificates, and power of attorney issued by the NRE) to the competent tax authority within 30 days of signing the agreement. Otherwise, it should withhold BT and VAT for the NRE regardless of whether the NRE makes its own tax filing.

4. Overall Supervision System

No. 19 Decree requires tax authorities to supervise a tax payment by using information from various government authorities, e.g. for construction, foreign exchange, commerce, education, etc. If the tax authorities doubt the authenticity of the content of an overseas payment voucher, they can require a notary public or certified public accountant to issue a confirmation certificate. Without confirmation from the tax authorities, a payment voucher cannot be booked in the accounts of a Chinese Outsourcer.

The following projects will be the focus of supervision by tax authorities:

1) Projects specifically supported by the State, provincial or municipal governments, including construction of city infrastructure and resources, and importation of equipment and technology;

2) Projects each with a contract value of over RMB 50 million.

For investigation, the tax authorities may also request information from countries that have tax treaties with China. Tax authorities may even notify China's Entry and Exit Administration Authority to prevent the legal representative of a NRE from leaving China until all taxes are paid.

Though No. 19 Decree and No. 6 Circular provide detailed requirements on tax matters for NRE project contractors and service providers in China, some ambiguities require further clarification by SAT, e.g. the concept of "place of business" is not defined and it is unclear whether this concept is subject to the same criteria as those applying to "establishment". It is also arguable whether the new requirements apply to a NRE that undertakes an overseas project of a China Outsourcer.

Nevertheless a pressing task for a NRE is to understand and follow the tax registration and filing requirements under No. 19 Decree and No. 6 Circular, to ensure legal obligations can be met at each stage of a project or service. Because China now has an overall supervision system that shares information between government authorities and exchanges information with other countries, a NRE should take care on the consistency and accuracy of the documents it submits to various Chinese and overseas authorities. A NRE should also pay close attention to follow-up clarifications of tax authorities, and is encouraged to seek professional advice from tax and legal advisors to prevent non-compliance risks.


1 An enterprise set up under a foreign law without an actual management organization in China, which has establishment or place of business in China, or has no establishment or place of business in China but has income sourced from China.

2 Provisional Measures on Tax Administration of Non-Residents Engaging in Contracting Projects and Services (SAT No. 19 Decree of 2009)

3 Administration Measures on the Annual Enterprise Income Tax Filing of Non-resident Enterprises (Guo Shui Fa (2009) No. 6)

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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