SAT clarifies policy on non-resident enterprises

The State Administration of Taxation issued the Determination and Levy of Income Tax on Non-Resident Enterprises Administrative Measures (Guo Shui Fa [2010] No. 19) on 20 February. The Measures apply to non-resident enterprises as defined in the second paragraph of Article 3 of the PRC Enterprise Income Tax Law, i.e. non-resident enterprises that have established offices or premises in China.

The Measures specify that either of two methods may be used to levy tax on non-resident enterprises: (1) the determined profit rate for different industries under the “levy by determination” method and (2) the treatment principles for the levy of tax on the actual revenue derived by non-resident enterprises from business and the provision of services both inside and outside China.

The two tax levy methods

Under the method of filing and payment of tax by enterprises based on actual revenue, a non-resident enterprise is required to keep account books in accordance with the law, keep its accounts and do its accounting based on lawful and valid receipts, accurately calculate its taxable income based on the principle of the matching of the functions it actually performs and the risks that it bears, and file and pay enterprise income tax based on its actual revenue.