How are non-resident enterprises regarded for tax purposes?
Profit, dividend, interest, rental, royalty, gains from the disposal of buildings and structures and attached facilities located in China and gains from the assignment of land use rights within China and other China-sourced incomes, as specified by the Ministry of Finance derived by foreign enterprises with no establishment in China, are liable to a withholding tax of 20% on the gross income (or amount of gain in the case of disposal of buildings or assignment of land use rights) so derived. Starting from January 1, 2000 the withholding tax rate on interest, rental royalty and other income was reduced to 10% by concession. In addition, exemption may be granted under the following circumstances:
- After-tax profits distributed to foreign investors of FIEs are exempt from withholding tax.
- Interest earned by international lending agencies from loans extended to the Chinese Government and Chinese state banks shall exempt from withholding tax.
- Interest earned by foreign banks from loans extended to Chinese state banks at preferential rates shall be exempt from withholding tax.
- Where the terms are favourable and the technology transferred is advanced, royalty income may be exempted from withholding tax.
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