The State Administration of Foreign Exchange (SAFE) and the State Administration of Taxation (SAT) of the PRC jointly issued the Circular on Relevant Issues Concerning Submitting Tax Certificates for Foreign Payments under Trade in Services and Other Items, the Circular) on November 25, 2008, and it has been in effect since January 1, 2009. The following Circular were abolished simultaneously:
The Circular is released for the purpose of improving the management of foreign exchange and taxation related to payments under trade in services, income (defined in the Circular as including employment compensation and investment income), current transfers, and certain capital items.
SAFE and SAT specify the cases where a Tax Certificate for Foreign Payments under Trade in Services, Income, Current Transfer and Some Capital Items (the Tax Certificate) is required. If a domestic institution or individual makes a foreign payment of more than US$30,000, and the payment is for any of the following items, that institution or individual must apply to the competent tax authority for a Tax Certificate:
- Income earned by a foreign institution or individual within China from trade in services, such as transportation, travel, communications, construction and related labor contracting, insurance services, financial services, IT services, franchising and licensing, cultural and entertainment services, other commercial services, and government services within China;
- Income obtained by a foreign institution or individual from employment compensation, stock interests, dividends, profits, debt interests, profits on guarantee fees, and current transfer items within China; transfer items refer to non-capital transfers, such as donations, compensations, tax revenues, and incidental income; or
- Financial leasing rents, real estate transfer gains, and equity transfer proceeds that a foreign institution or individual has obtained within China.
According to the Circular, when domestic institutions or individuals make foreign payments for such items as business trips, commercial exhibits, foreign projects and international transportation, which expenses are generated outside of China, they do not need to apply for and submit Tax Certificates. The Circular does not dictate the procedures that domestic institutions and individuals have to follow to obtain their Tax Certificates. SAT will spell out the procedures in other regulations.
As for foreign companies that are engaged in international shipping, and that are required to submit Tax Certificates for foreign payments of shipping proceeds, they should refer to the Supplementary Circular on Strengthening the Administration of Taxation on the Shipping Income of Foreign Companies and Foreign Payments in International Marine Shipping Business issued by SAT and SAFE in 2002 (Guoshui Fa No.107)
The Circular supersedes five previous circulars issued by SAFE and/or SAT between 1999 and 2008, concerning the submission of tax certificates for the purchase and payment of foreign exchange under non-trade and certain capital items, as well as tax filings and tax collections for foreign payments under trade in services.