The State Taxation Administration (STA) launched a cross-border tax service for non-resident enterprises in April 2023 by adding a functional module in the nationwide online tax filing system called E-tax China, through which overseas enterprises can directly register for tax, make filings and attend to settlement online for domestic equity transfers.
“Non-resident enterprise” refers to an enterprise which is established and managed in a jurisdiction other than China, either having an office or premises established in China, or having income derived from China but with no office or premises there.
The new function supports both Chinese and English, and is specifically applicable to non-resident enterprises that obtain equity transfer income from non-listed companies (not including restricted shares) in China with no withholding agents, and need to file enterprise income tax (EIT) and stamp duty per occurrence on their own. The E-tax system provides services such as contract information collection, intelligent judgement of tax obligations, tax calculations and cross-border tax payments.
With the launch of new functions in the E-tax system, non-resident enterprises can register for tax using a valid e-mail address and then upload certificates for verification. After verification, they will obtain their unique taxpayer identification numbers, which enable them to register, declare and pay taxes online with nationwide applicability. This service is the first of its kind in the country, and is a timely and effective response to enormous demand for a cross-border tax service.
China has been optimising its business environment for international taxation and trying to remove barriers to cross-border tax payments. The new functions launched in the E-tax system should save overseas taxpayers from the burden of on-site visits and tax filings to some extent.
However, proactive communications with the in-charge tax authority beforehand are still inevitable due to the following reasons:
- Although tax filings can be submitted in the E-tax system, it is apparently still necessary for foreign taxpayers to discuss with the tax authority the pathways to make cross-border tax payments, unless the taxpayer can use UnionPay for tax settlement.
- Although the pre-filing review and approval by the tax authority are not legally required under the current regime, given the immaturity of the online tax payment function, and previous tax filing experience, it is still important to communicate with the tax authority beforehand and reach a consensus to secure certainty on issues such as the reasonableness of the equity transfer price and the tax basis.
It is also important to note that e-filing is not applicable if the taxpayer wishes to claim the special tax treatment granted to overseas taxpayers under the Filing of Special Tax Treatments Applicable to Equity Transfers by Non-Resident Enterprises, issued by the STA in 2013, or if the taxpayer would like to claim tax treaty benefits under the applicable tax treaty/arrangement signed by China with the taxpayer’s resident jurisdiction. Accordingly, it is still necessary for taxpayers with such needs to make on-site visits to the in-charge tax authority.
Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at howard.wu@bakermckenzie.com
