The concept of tax residence for enterprises was introduced by China’s Enterprise Income Tax Law (“EITL”), effective since 2008. Later in 2009, the SAT published Circular [2009] No. 82 providing guidelines to foreign companies controlled by Chinese investors regarding their possible qualification as tax residents in China based on the criterion of place of effective management. Article 7 of this Circular [2009] No. 7 provides the possibility for a foreign companies controlled by Chinese investors to apply for being recognized as Chinese tax resident.

In February, Bulletin [2014] No. 9 was published to modify or clarify provisions under Circular [2009] No. 82 in relation to the application process. Below we highlight its main contents:

  • The main Chinese investor’s in-charge tax bureaus will handle the applications applications that foreign companies controlled by Chinese investors submit to qualify as tax residents in China. Under Circular [2009] No. 82, the tax bureau in charge of the application was the one of the place of effective management , which could cause conflicts when the company had more than one place of effective management.
  • The competence for assessment of the tax residency is delegated to provincial-level tax bureaus, which must report to the SAT within 30 days. The SAT must publish the decision on the Chinese tax residence of a foreign company on its official website, and it is entitled to verify the decisions made. Meanwhile, under Circular [2009] No. 82 the application process involved step -by-step assessment by several levels of tax bureaus up to the SAT’s final approval.
  • Dividends from a Chinese subsidiary that the foreign company with tax residence in China receives benefits from the exemption of article 26 of the EITL (further developed in articles 17 and 83 of the Implementation Rules of the EITL ). Circular [2009] No. 82 contained a similar provision, which is confirmed and further clarified in Circular [2014] No. 9.

Bulletin [2014] No. 9 applies to applications after its date of effectiveness in relation to tax year 2013 onwards.

Date of issue: January 29, 2014. Date of effectiveness: January 29, 2014.