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[ English (pdf, 147.1kb)  | Chinese (pdf, 183.6kb) ] September 2009

Following the issuance of Caishui [2009] No. 5 on 5 January 2009, the State Administration of Taxation ( SAT)  issued Guoshuihan [2009] No. 461 (Circular 461) on 24 August 2009, which provides further guidance on Individual Income Tax (IIT) calculation and filing obligations with respect to stock-incentive income. 
This alert provides an overview of the new circular and of the actions required by employers.

[ English (pdf, 196.9kb) | Chinese (pdf, 288.1kb) ] September 2009

Certain new tax policies on PRC Individual Income Tax relating to employees, Administrative measures on non-resident employees enjoying treaty entitlement.

[ English (pdf, 152.4kb) | Chinese (pdf, 214.4kb) ] August 2009

It is common for foreign entities to second expatriate employees to China to take up management or technical positions in their Chinese affiliates.  Frequently, the payroll of seconded expatriates continues to be managed by the sending entities, which then seek a reimbursement of the expatriate employees’ compensation. In the past, the Chinese affiliates were able to repay such compensation expenses to their related foreign entities on the strength of the China Individual Income Tax (IIT) returns and receipts.  Where the reimbursement represents only costs without any mark-up, the foreign entities are generally not considered to have created a permanent establishment (PE) in China, unless other circumstances exist to negate the conclusion. However, it appears that the situation may be subject to change in the near future. The Chinese affiliates may encounter difficulties in remitting such payments as China embarks on a special investigation on whether such secondment arrangements may give rise to a PE.  The PE risk would be higher if the foreign entity charges, on top of the payroll, a mark-up on the reimbursement.

This alert provides an overview of the current trends as well as our observations on certain uncertain areas that company executives overseeing the human resources function should pay attention to.

[ English (pdf, 593kb)  | Chinese (pdf, 633.1kb) ] July 2009

On 4 May 2009, the Ministry of Finance and the State Administration of Taxation (SAT) jointly issued Caishui [2009] No. 40 stipulating the Individual Income Tax (IIT) treatment on stock option income derived by senior executives of publicly listed companies.  Shortly afterwards, the SAT issued another notice, Guoshuihan [2009] No. 285, on 28 May 2009, urging local tax authorities to strengthen the IIT administration on gains generated from share transfer. These notices together reflect the attention the SAT is currently putting on the enforcement of IIT administration on share related gains derived by employees and investors.

This alert provides an overview of the two tax notices as well as our observations on certain uncertain areas that company executives overseeing the human resources function should pay attention to.

[ English (pdf, 135KB) | Chinese (pdf, 220KB) ]
May 2008

A powerful earthquake struck Sichuan province in southwest China on 12 May 2008, destroying tens of thousands of lives, homes, factories, offices and schools. Tragic and destructive, the earthquake is one of the worst natural disasters to have hit China in the past three decades, with the true scale of the devastation yet to be known.

As part of the swift government response to the disaster, the State Administration of Taxation (the SAT) has issued a tax circular Guoshuifa [2008] 55 (Circular 55) on 21 May 2008 with the aim of providing simplified procedures to individuals making donations to aid efforts in earthquake stricken areas and to encourage taxpayers to make donations.

This alert gives an overview of the simplified procedures in relation to earthquake donations, summarizes the related implementation guidelines and procedures as well as highlights some areas of which tax withholding agents and individuals may want to take a note.

[ English (pdf, 213KB) | Chinese (pdf, 276KB) ] Feb 2009

On 7 January, 2009, the Ministry of Finance and State Administration of Taxation issued Caishui [2009] No. 5. This circular states that Stock Appreciation Rights (SARs) and Restricted Stock (RS) shall be taxed according to Caishui [2005] No. 35 and Guoshuihan [2006] No. 902, which has the effect of aligning the tax treatment of SARs and RS with that of stock options.

This alert gives an overview of the new circular and how it impacts the taxation of SARs and RS, as well as highlighting actions required by employers and employees.