Meaning
Revenue calculation methods under the Corporate Income Tax Law of China determine the taxable income arising from the disposal of capital assets. Under these rules, capital gains tax calculation requires subtracting the historical acquisition cost and any reasonable expenses from the gross transfer price. It governs the disposal of equipment or equity investments held by both resident and non-resident enterprises.
The calculation is not applied to ordinary inventory sales or routine service revenues which are subject to different tax rates.
Filing Procedure
Non-resident enterprises without an establishment in China must have their tax calculated and withheld at the source by the payer of the income. The withholding agent must file the tax return and remit the tax to the local tax bureau within seven days of the payment obligation arising. Failure to do so results in penalties and interest charges accruing on the unpaid amount.
Asset Valuation
The determination of the original acquisition cost requires presenting original tax receipts or purchase contracts approved by the authorities. If these documents are missing, tax bureaus use verified appraisal reports or industry averages to establish the base value. This prevents artificial inflating of costs to minimize tax liabilities.
Withholding Obligation
Local buyers of assets must act as withholding agents to avoid joint liability. If the buyer fails to withhold, the tax authority recovers the unpaid tax from the non-resident seller directly or restricts the buyer’s asset transfers.
