China Tax Alert - Issue 16, July 2013
On 9 July 2013, the State Administration of Taxation (SAT) and the State Administration of Foreign Exchange (SAFE) jointly issued Announcement 40 to prescribe a new tax registration requirement for Chinese residents making certain payments overseas, effective from 1 September 2013. The scope of the new circular covers cross-border service fees as well as other current account and capital account items under China’s foreign exchange regulations.
Announcement 40 is a welcome development for multinational companies (MNCs) doing business in China. It eliminates the existing requirement that tax clearance must be secured before outbound remittance can be carried out; it will also significantly expedite cash transfers from China to overseas for items covered by the circular. However, with the new tax recordal filing system, taxpayers may face greater penalty risks if they are unable to demonstrate that Chinese taxes in connection with the remittance have been adequately settled.