New measures for non-resident taxpayers claiming treaty benefits
The China State Taxation Administration has recently issued the new administrative measures (Announcement [2019] No. 35) for non-resident taxpayers claiming the benefits provided by the tax treaties that China has signed with other jurisdictions, such as reduction of exemption from obligations related to the payment of the company income tax and individual income tax as provided by the Chinese domestic tax laws.
These new measures apply to non-resident taxpayers with tax liabilities within the territory of the PRC who need to enjoy the tax treaty benefits and that are residents in jurisdictions that have signed a tax treaty with China.
Non-resident taxpayers are required to carry out a self-assessment and verify if they are eligible for the claim; if a non-resident taxpayer deems to satisfy all the requirements, it shall provide the Information Form and collect and retain relevant materials for future reference.
In case a non-resident taxpayer performs the tax declaration by itself, it shall submit the Information Reporting Form for Non-resident Taxpayers claiming tax treaty benefits at the time of the declaration; the taxpayer shall also collect and retain the relevant documentation for future reference.
In case the income derived by the non-resident taxpayer is subject to withholding at source, the non-resident taxpayer who deems to be eligible for the tax treaties benefits shall timely inform the withholding agent and provide him with the Information Reporting Form for Non-resident Taxpayers claiming tax treaty benefits and collect and retain the relevant documentation for future reference.
The non-resident taxpayer is required to collect and retain for ten years the relevant documentation for future reference, including:
tax resident status certificate issued by the competent tax authority of the other treaty contracting party;
contracts, agreements, resolutions, payment vouchers and other documents related to the relevant income;
relevant information proving the status of “beneficial owne”, in case of passive income like dividends, interest, and royalties;
other information that the non-resident taxpayer deems to be necessary to prove that it meets the conditions for entitlement to benefits.
Chinese tax authorities at any level are empowered to conduct inspections and verify the correct implementation of the provisions of the tax treaties and prevent their abuse. If non-resident taxpayers claimed treaties benefits and fail to provide relevant materials to tax authorities or do not meet the required conditions, the tax authorities can recover the payment of the unpaid taxes and penalties.
The new measures will enter into force on January 1st, 2020, and will simplify the application procedure for non-resident taxpayers claiming tax treaty benefits.