China Tax Newsletter - January / February 2017

Tax Newsletter

Welcome to the latest issue of our Tax Newsletter.  In the past two months, there are a number of developments in the tax world in the PRC and Hong Kong. 

In the PRC, the State Administration for Industry and Commerce introduced a simplified deregistration procedure applicable nationwide, as opposed to the usual deregistration process with the company registration authorities which may take investors one year or more to complete. The relevant Guiding Opinions were released to detail various requirements. However, investors should still be aware that the practices may vary from different local authorities.

The Shanghai municipal government has recently issued and amended its policies in encouraging the establishment of regional headquarters (RHQs), which has lowered the threshold for the relevant certification requirements and introduced more benefits for RHQs. The new amendments took effect on 1 February 2017 and will be valid for 5 years.

The State Administration of Taxation (SAT) laid out rules on the tax registration of representative offices of foreign non-government organizations (NGOs). Specifically, NGOs should conduct tax registration with the tax authority after registration with the public security authority.

The SAT reaffirmed its determination to improve the quality and efficiency of its advanced pricing arrangement (APA) applications with its issuance of the annual APA report 2015. The report summarises the data for the years from 2005 to 2015 and sheds some light on the types of successful APAs.

The SAT released an Announcement on the Timeline for Deducting the Land Price and Other Issues Concerning VAT Levying and Administration to clarify matters in relation to tax circular Caishui [2016] No. 140 about VAT collection and administration in real estate development, education auxiliary service and finance service sectors.

What is more, the SAT and Ministry of Land and Resources issued an Announcement of the State Administration of Taxation and the Ministry of Land and Resources on Several Matters relating to the Implementation of Preferential Policies on the Reform of Resource Tax following various tax notices about the Resources Tax Reform, which covers major issues such as the preferential tax treatment for resources tax, its exceptions and its documentation requirements.

Last but not least, the State Administration of Foreign Exchange issued a Circular on Further Advancing the Reform of Foreign Exchange Administration and Improving Examination of Authenticity and Compliance to address capital and current account payments to further tighten outbound currency flow, whilst encouraging domestic enterprises to repatriate overseas funds back to the PRC.

In Hong Kong, a public consultation was carried out to discuss the requirement for companies to maintain a register of controllers. If the requirement becomes law, there is no need to go beyond looking at a company's own documents to trace its beneficial ownership.

As discussed in our previous issue of newsletter, the government is proposing a flat rate of 15% ad valorem stamp duty across all residential property transactions in a Stamp Duty (Amendment) Bill. This Amendment Bill was introduced into the Legislative Council on 8 February 2017 and would be subject to further debates before it becomes law.

The Departmental Interpretation and Practice Note No. 53 was issued with regards to the application of profits tax provisions relating to regulatory capital securities in the Inland Revenue (Amendment) (No. 2) Ordinance 2016. It clarifies the tax treatment of regulatory capital securities issued by financial institutions pursuant to the Basel III capital adequacy requirements.

The Hong Kong Institute of Certified Public Accountants and the Inland Revenue Department (IRD) had their annual meeting at the end of last year and discussed about the issuance of the Certificate of Resident Status. The IRD reiterated its role to uphold the tax treaty and its consideration of beneficial ownership before issuing the Certificate of Resident Status.

Hong Kong entered into comprehensive agreements for the avoidance of double taxation (CDTAs) with Belarus and Pakistan respectively on 16 January 2017 and 17 February 2017.

The 2017 - 2018 Budget was announced on 22 February 2017. Proposing a number of tax measures, to boost the economy and to improve Hong Kong's tax regime. One of the tax measures is to adopt a new dedicated tax regime to develop aircraft leasing business in Hong Kong and to acquire a bigger market share.

We welcome your feedback and any question you may have about this issue of the Tax Newsletter.

Read the latest issue of our Tax Newsletter