Meaning
Legal mandates within the corporate income tax law establish the withholding obligations for non-resident enterprises that do not have an establishment in China. This corporate income tax article 37 requires the payer of the income to act as the withholding agent for taxes due on dividends and royalties. The tax is calculated on the gross income unless specific deductions are allowed under a relevant treaty.
Withholding Duty
Domestic entities that pay service fees or license royalties to foreign companies are legally responsible for deducting the tax at the source. Under corporate income tax article 37, the withholding agent must register the contract with the tax authorities before making the first payment. Failure to withhold the correct amount can result in the domestic company being held liable for the unpaid tax and associated fines.
Calculation Method
Taxable income for property transfers is determined by subtracting the net value of the property from the total transfer price. For income from dividends or interest, corporate income tax article 37 specifies that the full amount of the payment is subject to the standard ten percent rate. If the payment is made in a foreign currency, the agent must convert the amount into renminbi using the exchange rate on the day the tax liability arises.
Payment Deadline
Funds must be remitted to the state treasury within seven days of the date the withholding obligation occurs. This corporate income tax article 37 mandate applies regardless of whether the agent successfully deducted the funds from the payment to the non-resident. If the non-resident enterprise fails to pay the tax and the agent fails to withhold it, the tax authority may recover the amount from other income the non-resident derives from China.
