Asia Tax Bulletin - Winter 2021/22

At the State Council Executive Meeting on 27 October, it was decided that China will extend its tax exemption on bond interest for foreign investors until the end of 2025. The existing preferential treatment provided in China tax circular Caishui [2018] No. 108 provides a three-year tax exemption on bond interest up to 6 November 2021. This was formalised through the joint issuance by the Ministry of Finance and the State Taxation Administration of circular (Circular [2021] No. 34) on 22 November 2021. The tax exemption covers both the 10% PRC Corporate Income Tax and 6% Value-added Tax for bond interest earned by foreign institutional investors who typically invest via three main China bond access routes, being: QFII; China Inter-bank Bond Market (CIBM) Direct; and the Bond Connect Scheme. It is anticipated that the extension this time should be in line with what was granted under Circular 108.