China and Intra-group overseas services

Chinese resident companies can receive services from overseas related parties and make payments accordingly upon filing the relevant contracts. If the service is performed by the overseas related party in the territory of China or if the related income is derived in China, a withholding tax can be imposed according to a deemed profit rate. The resulting withholding tax rate for company income tax is generally 10% of the gross amount of the service.

There is an exemption from withholding tax if 1) the service is performed outside China (or the income is derived outside China) or 2) the service is performed within China by the overseas service provider, but it is not attributable to any permanent establishment in China (as per tax treaty, if any).

If the service payment is considered as a royalty payment, the withholding tax of 10% is applied.

In addition, when the service is considered not beneficial for the Chinese company, Chinese tax bureau might consider the payment as a management fee and apply withholding tax 10% on the gross amount (or alternatively the cost might be not deductible for the Chinese company when computing the company income tax).

Besides the company income tax, services provided to Chinese recipients are also subject to VAT (generally added on the top, paid by the Chinese recipient directly to the tax bureau and then claimed as VAT credit).