China: Tax Regulation for Non-Resident Global Transportation Companies

Since 1980s, several rules and regulations concerning non-resident global transportation companies, inter alia, tax administration, foreign payment, tax treaty benefits and etc. have been announced by Ministry of Finance, State Administration of Taxation and State Administration of Foreign Exchange.

The new amendment income tax law has taken into effect from 2008 to revise its old version. Hence, tax regulations and rules in respect of non-resident global transportation companies changed significantly. 

The State Administration of Taxation also issued NonResident International Transport Companies Taxation and Administration Act on 30 June 2014, comprises of five chapters and 23 codes, i.e. general principle (1-4), tax collection management (5-10), tax benefit regulations (11-15), tracking management (16-19) and supplementary provisions (20-23). This Act has mainly affected the non-resident enterprises engaging in the business of international shipping and international air freight. 

The details of these new regulations are as follows: 

1. Specify the scope of operation for the nonresident international transport companies 

The Regulation defines “Taxable International Transportation Services” as transportation of passenger, goods, mails or others across China border and into or out of China ports via selfowned or leased vessel and flights under the arrangement of voyage charter, time charter and wet lease fall within the scope of Taxable International Transportation Services and are also governed by the Interim Measures. 

2. Tax Registration Management 

Non-resident companies engaging in the aforesaid international transportation are required to complete tax registration according to State Administration of Taxation Order (2009) No.19 (“Order 19”, i.e., Interim Tax Administration Measures on Engineering and Labor Service Contracts Undertaken by Non-residents) 

For the convenience of tax payers and tax administration, non-resident entities that would operate simultaneously in different cities, are allowed to choose any of the regional authority to complete its tax registration. For the services rendered in other regions, no tax payment is needed but only submit copy of its tax registration certificate and relevant documents in other parts of China where its services are attached to its tax authorities in charge. 

3. Payers are responsible to withhold the relevant tax payment 

For ease of management, non-resident entities with non-completion of its tax registration or failed to complete tax filing, tax payers are responsible to withhold the relevant tax payment. 

4. Rules on income tax collection 

There are three ways to file corporate income tax: Actual basis, Deemed basis and Withholding basis. The first method is used where entities with tax registered are able to calculate corporate income tax payable accurately; the second method is used where filing information is not able to compute corporate income tax payable accurately even with tax registered; the last method is used where entities do not complete tax registration, or are not able to file tax return on their own and without any appointed agent. Hence, tax payer will act as withholding agent and withhold its taxes at the time of payment. 

5. Tax Treaty benefits 

5.1 Where a non-resident company wish to apply for treaty benefits, it is required to submit the required documents such as its tax resident certificate as prescribed in the Provisional Measures to its tax authority in charge in accordance with the Non-Tax Residents for Tax Treaty Benefits (Trial Implementation) (Guoshuifa [2009] No.124). 

In order to ease the burden of tax payer, pursuant to Clause Twelve of the Regulation stipulates that entities need not re-submit documents as required for tax treaty benefit if the said documents have been placed with its tax authority in charge. 

Non-resident companies entitled to treaty benefits should obtain the relevant license for carrying passengers and commodities across domestic ports of China. Their international transportation income which entitled to treaty benefits includes passenger receipts, freight receipts and any auxiliary services income. 

5.2 The Regulation also applies to other taxes where the tax treaty relates to, except for value added tax, service tax, and corporate income tax.

6. Other issues 

With effect from 1st August 2014, non-resident international transportation entities who applied for tax treaty benefit and obtained tax exemption certificate before 1st August 2014 are not required to reapply within a stipulated time frame.

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