In June 2021, the Standing Committee of the 13th National People’s Congress (NPC) officially announced the Stamp Duty Law of China (SD law), which became effective from 1 July 2022. The SD law replaced the prior SD Provisional Regulations. To clarify certain policies under the SD law and questions regarding practice, on 12 June 2022 the Ministry of Finance (MOF) and State Taxation Administration (STA) jointly issued Bulletin (2022) No. 22, which provides implementation guidance for certain SD issues.
| Subject matter of the taxable document |
Use within the PRC |
| Real property | Real property is physically in the PRC |
| Equity interest | Equity interest of a PRC resident company |
| Movable asset or trademark, copyright, patent and know-how | Either the seller or buyer is within the PRC, except if the subject matter is completely used outside the PRC |
| Service | Either the service provider or service recipient is within the PRC, except if the service is completely provided outside the PRC |
Notably, bulletin 22 clarifies the following:
- SD taxpayers. The SD law provides that entities and individuals who conclude taxable documents within the PRC, or who conclude taxable documents outside the PRC but for use within the PRC, should be liable for SD. Bulletin 22 further clarifies that SD taxpayers should be entities or individuals who are legally responsible or liable for taxable documents.
- Taxable documents concluded outside the PRC but for use within the PRC. The SD law generally provides that taxable documents concluded outside the PRC but for use within the PRC should be subject to SD. In clarifying the meaning of “use within the PRC”, bulletin 22 provides the scenarios where SD should be levied as shown in the above table.
- SD administration. Bulletin 22 provides the following scenarios where SD taxpayers can re-determine the SD:
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- The original amount in the taxable document is different from the actual settlement amount and the original amount on the taxable document is adjusted; and
- The SD is overpaid or underpaid due to the miscalculation of value-added tax (VAT).
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Bulletin 22 addresses a number of practical questions that are particularly relevant to cross-border transactions. Multinational companies (MNCs) should consider the SD implications in structuring their transactions.
- Equity transfer. Bulletin 22 confirms that provided the subject matter is the equity interest of a PRC resident company, the transferor and transferee (domestic or foreign) should be subject to SD. Foreign transferors or transferees can report and pay SD by themselves, or appoint a domestic agent for the reporting and payment of SD. Technically speaking, an indirect transfer agreement that is concluded outside the PRC should not be subject to SD as the subject matter is not the equity interest of a PRC resident company.
- Sale of tangible asset, licence of intangible asset and service. Bulletin 22 leverages the principles under VAT regulations in determining whether a taxable document is used within the PRC by reference to the location of the seller/service provider and buyer/service recipient. Under bulletin 22, if the seller/service provider or buyer/service recipient is within the PRC, the document for the sale of tangible asset, licence of intangible asset and service could be subject to SD. For example, a foreign company that sells goods or provides a licence to a company within the PRC could be subject to SD. The authors have seen some cases in practice where the foreign companies are required by PRC-based companies to fulfil their SD obligation. MNCs are advised to monitor the local practice and check whether their existing agreements specify which party should bear SD.
Similar to the treatment under VAT regulations, bulletin 22 includes these exceptions to the general rule:
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- Complete foreign use of asset; and
- Complete foreign performance of service. Bulletin 22 does not provide detailed guidance on how to determine the foreign use of asset and performance of service. The application of the exceptions should be analysed for each case.
- Administrative burden. Under the SD law, MNCs can either report and pay SD by themselves or appoint a domestic agent in China to fulfil their SD obligation. However, in practice, the self-reporting method may not always be straightforward, and MNCs may need to work with tax authorities and other parties (e.g. banks) to figure out a practical solution. For MNCs with a large number of taxable documents, the administration burden should not be underestimated.
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
