Meaning
Administrative tax notices issued by the State Taxation Administration govern the withholding of enterprise income tax on non resident entities that do not have an establishment in China. The public notice 2017 number 37 regulates the calculation and payment of withholding tax on equity transfer income and other passive income of foreign companies. This regulation simplifies the administrative procedures while tightening the collection of capital gains tax from foreign investors.
Withholding Obligation
Payers of the income are designated as withholding agents and must calculate and deduct the required tax before making payments to the non resident. The public notice 2017 number 37 mandates that the withholding agent must submit the collected tax to the local tax authority within seven days of the transaction. This obligation applies to both domestic companies and foreign entities operating within the country.
Asset Valuation
Calculation of the equity transfer income relies on the difference between the transaction price and the net book value of the equity. Under public notice 2017 number 37, the tax bureau has the power to adjust the transaction price if the transfer is conducted below fair market value without a reasonable commercial purpose.
Compliance Deadline
Non resident enterprises must coordinate with their local withholding agents to ensure timely filing and tax payment. If the withholding agent fails to deduct the tax, public notice 2017 number 37 requires the non resident taxpayer to declare and pay the tax within thirty days. Late payments trigger daily interest charges and administrative penalties for both the tax agent and the foreign investor.
