Meaning
Administrative regulations issued by the State Administration of Taxation govern the withholding of income tax for non-resident enterprises. This bulletin 2018 no 9 clarifies the procedures for claiming tax treaty benefits and specifies the documentation required to prove beneficial ownership. Foreign entities must provide evidence of substantive business activities to qualify for reduced withholding rates.
Reporting Obligation
Taxpayers seeking relief under a double taxation agreement submit specific forms to the local tax bureau. The bulletin 2018 no 9 requires the non-resident recipient to declare that they meet the criteria for a beneficial owner, which includes having control over the income and the assets that generate it.
Filing Procedure
Documentation must be filed at the time of the first tax declaration or when the withholding agent performs the withholding. Under bulletin 2018 no 9, the tax authority performs a post-filing review rather than a pre-approval process, shifting the burden of compliance to the taxpayer. If the authority determines the recipient is a conduit company, the treaty benefits are denied and back taxes are assessed with interest.
The review process involves checking the financial statements and employee records of the applicant to ensure they are not a paper entity.
Enforcement Mechanism
Local tax bureaus utilize information sharing with other government departments to verify the commercial substance of the foreign claimant. This bulletin 2018 no 9 allows officials to look through intermediate holding companies to identify the actual beneficial owner. Failure to maintain the required records results in the loss of treaty status and administrative penalties for the withholding agent.
