BEIJING: China’s tax department (SAT, State Administration of Taxation) has announced a new policy to indirect transfers of properties by Non-tax Resident Enterprises.
Announcement is effective as of February 3, 2015 and largely replaces the previous guidance in the Circular of SAT on Strengthening the Administration of Corporate Income Tax on Incomes from Equity Transfers of Non-Resident Enterprises “Circular 698”). It also applies to transactions that took place before February 3, 2015, but for which the relevant PRC tax has not yet been settled.
Announcement introduces significant changes to the scope of indirect transfer transactions subject to PRC tax and the reporting and withholding obligations of the parties to an indirect transfer transaction.
Circular 698 only applied to the indirect transfer of equity interests in PRC entities. Announcement expands the scope of indirect transfers to include transfers of, property rights of an “establishment or site” (which is similar to the concept of a “permanent establishment”) in China, real property in China, and, equity investments in Chinese resident enterprises (collectively, “Taxable Property”). Thus, Announcement captures not only share or other equity transfers as Circular 698 did, but also transfers of other forms of interest.
