Analysis of the Issues Involved the Non-resident Enterprise Income Tax
Non-resident enterprises shall refer to Enterprises that are set up in accordance with the law of the foreign country (region) whose actual administration institution is outside China, but they have set up institutions or establishments in China or they have income originating from China without setting up institutions or establishments in China.
The establishment refers to any establishment engaged in manufacturing and business operating activities within the territory of China, including: 1) a place of management, operation or administration; 2) a farm, factory or place of extraction of natural resources; 3) a place where services are rendered; 4) a place of construction, installation, assembly, repair, and exploitation, etc.; 5) other establishments engaged in manufacturing and business operating activities. Where a non-resident enterprise entrust a business agent to engage in manufacturing and business operating activities within the territory of China, including where the entrusted entities or individuals sign contracts, or store and deliver commodities on behalf of the non-resident enterprise on a regular basis, the business agent shall be regarded as an establishment of the non-resident enterprise within the territory of China.
The income includes income from sales of goods, rendering of services, and transfers of properties, income from equity interests such as dividends or profits distributions and from interest, rental, royalties, donations, and other income. The income sourced within or outside of China is determined based on the following principles: 1) for income from sales of goods, source is determined in accordance with the place where the trading activities occur; 2)for income from rendering services, source is determined in accordance with the place where the service activities occur; 3) for income from transfers of immovable properties, source is determined in accordance with the place where the immovable properties are located; for income from transfers of movable properties, source is determined in accordance with the place of the transferring enterprise or establishment which transfers the movable properties; for income from transfers of equity interests, source is determined in accordance with the place where the invested enterprise is located; 4) for income from equity interests such as dividends and profit distributions, source is determined in accordance with the place of the enterprise which makes the distribution; 5) for income from interest, rental and royalties, source is determined in accordance with the place of the enterprise or establishment which bears or pays the income, or with the place of domicile of the individual who bears or pays the income; 6) for other income, source will be determined by the government authorities of the State Council in charge of finance and taxation.
Non-resident enterprises that have set up institutions or premises in China shall pay enterprise income tax in relation to the income originating from China obtained by their institutions or establishments, and the income incurred outside China but there is an actual relationship with the institutions or establishments set up by such enterprises. The enterprise income tax rate shall be paid by that type of enterprise is 25 percent according to law.
Where non-resident enterprises that have not set up institutions or establishments in China, or where institutions or establishments are set up but there is no actual relationship with the income obtained by the institutions or establishments set up by such enterprises, they shall pay enterprise income tax in relation to the income originating from China. The enterprise income tax rate shall be paid by that type of enterprise is 20 percent according to law.
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1 The actual relationship income refers to income earned by establishments of non-resident enterprises within the territory of China that own share rights or creditor’s rights through which income is earned, or that own, manage, or control properties through which income is earned.
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