PWC Tax Newsletter - Autumn 2017

This newsletter will focus on the regulation updates in relation to investment in China. We will analyse the major updates of these new policies and the relevant implications.

Other areas covered are updates on the following in part 2 of the newsletter:

  • OECD releases the 2017 edition of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration;
  • The guidance on the implementation of Country-by-Country Reporting are updated under BEPS Action 13;
  • VAT supplementary circular is released for asset management industry; and
  • Hong Kong’s Chief Executive announces new tax incentives.

Part 1 – Regulation updates in relation to investment in China

1. The State Council issued a new circular setting forth 22 measures to improve the business environment for foreign investment in China


In August 2017, the State Council of China issued a new circular covering 22 measures to improve the business environment of foreign investment in China (hereinafter referred to as the “Measures”). The Measures cover five areas, namely: further relaxing the access restriction on foreign capital, formulating fiscal and taxation incentives, improving the investment environment for state level economic development zones, facilitating talent entrance and exit, optimising business environment.


  • The Measures emphasise the opening up of the banking, securities, insurance, internet services, telecommunication sectors to foreign investments and require the relevant departments to specify the timeline and roadmap for implementation. In addition, the Measures also promise to open up several new sectors, such as the manufacturing of new energy automobiles, vessel design, repair of regional and general aviation aircraft, etc., as well as international marine transport and railway passengers transportation.
  • One of the most attractive highlights in the 22 Measures is that, profits derived within China by foreign investors that are directly reinvested in the state’s encouraged projects are eligible for tax deferral treatment subject to certain conditions, which means that they temporarily will not be subject to withholding income tax (tax deferral treatment for reinvestment). Currently the scope of encouraged projects has not yet been specified.
  • The Measures also specify the measures for foreign talent’s entry and exit from China, including formulating the implementation measures for foreign talent’s visa application, expanding the scope of visa issuance, relaxing the visa valid period.
  • The Measures also put forward two provisions related to repatriation of profits/dividends and protection of intellectual property rights, one is to ensure the free repatriation of legal profits derived within China, the other is to centralise the dealing with issues relating to the infringement of copyright, patent and trade mark, etc.


Against the backdrop of the slowing down of the overall FDI growth in China, it is believed that these policies could enable an equal and international business environment to attract foreign capital into the country. With China’s economic transition and the introduction of a series of national development strategies, FIEs may consider changing their strategies in China by shifting from low-end industry focused perspective to a more high-end industry oriented vision. 

2. New regulation was issued to refine the administration for corporate income tax withholding at source in China


In October 2017, the State Administration of Taxation released a Public Notice on the Matters Regarding Withholding Corporate Income Tax (WHT) at Source for Non-Tax Resident Enterprise (Non-TREs). This streamlines the comprehensive withholding regime. It also brings significant changes to the way that non-TREs fulfil their China tax obligation and withholding agents perform their withholding obligation, in all aspects of cross border transactions. Parties to any cross-border transaction should pay particular attention to these new rules.


  • The withholding obligation for non-TREs deriving dividends arises on the day the payment is actually made rather than on the day of the resolution to declare the dividends (or the day of the actual payment if it is paid before the resolution). The deferred timing of withholding obligation helps reduce withholding agent’s compliance burden and leaves sufficient time for taxpayers and withholding agents to prepare the necessary record-filing documents to claim treaty benefit. Meanwhile, the withholding tax on property transfer income received in instalments can be settled in instalments and deferred until after the relevant investment cost is fully recovered.
  • The exchange rate to be adopted in calculating the tax liability is clarified and the foreign exchange conversion rules for foreign currency taxable income are revised. Meanwhile, if the income or costs is in a currency other than RMB, they shall be converted into RMB first before calculating the gain. Taxpayers should adopt the exchange rate on the day the withholding obligation arises in calculating income and costs of foreign currency, instead of the day the income is obtained or initial investment is made.
  • The new regulation relaxes the timeline for the non-TRE’s self-reporting. A non-TRE who has self-reported and paid the relevant taxes before the imposition of a prescribed payment deadline by the tax authorities or who has paid the relevant taxes before the tax authority prescribed payment deadline shall be regarded as having made the tax payment on time and no additional surcharge would be imposed.
  • The new regulation removes the previous provision that requiring the withholding agent to perform contract registration with its competent tax authority within 30 days from the date the contract is concluded. In addition, for contracts involving multiple payments, it has cancelled the provision requiring the withholding agent to settle all taxes within 15 days prior to the last payment.


This regulation takes into account the practical problems of the WHT regime, clarifies some of the controversial issues, simplifies the withholding procedures, and defers the date on which the withholding obligation arises for dividends payment and equity transfer with instalment payments, etc. However, the regulation has not covered any provision to waive the withholding agent’s legal liabilities in this regard. As such, it is recommended that the payer should consider the relevant requirements in fulfilling their withholding obligations and add in relevant protection articles in drafting the business contracts.

From the point of view of the non-TRE taxpayers, in cases where the withholding agent has not settled or fails to settle the taxes, the non-TRE taxpayers should self-report their taxes. As such, the non-TRE taxpayers should have sufficient knowledge of China’s tax law and the benefits provided under the relevant tax treaties so that their Chinese tax liabilities have been properly cleared.

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