China Monthly Tax Brief: April 2024

In this China Monthly Tax Brief for April 2024, we highlight key developments in the realm of taxation for both business and individual taxpayers. The Tariff Law was passed, clarifying the content related to tariff collection that is currently scattered across various measures and announcements. The individual income tax payment period for equity incentives in listed companies was further extended from 12 months to 36 months, which aims to support innovation. The State Administration of Foreign Exchange released a notice to further streamline foreign exchange management and promote high-quality development in trade. STA also released a guide to assist “going global” individuals in better handling overseas tax and fee matters.

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China enacts new Tariff Law, effective from December 1

The 14th National People’s Congress Standing Committee passed the Tariff Law of the People’s Republic of China (“Tariff Law”) during its 9th session on April 26, 2024. The law will come into effect on December 1, 2024.

The enactment of the Tariff Law represents another significant step in China’s process of consolidating tax legislation. Of the 18 major tax categories currently in force in China, 13 have guiding tax laws specific to them.

China's Tax Law
Tax laws	Promulgation date	Implementation date
Tariff Law	April 26, 2024	December 1, 2024
Stamp Tax Law	June 1, 2021	July 1, 2022
Deed Tax Law	August 11, 2020	September 1, 2021
Urban Maintenance and Construction Tax Law	August 11, 2020	September 1, 2021
Resources Tax Law	August 26, 2019	September 1, 2020
Vehicle and Vessel Tax (revised)	April 23, 2019	April 23, 2019
Farmland Occupation Tax	December 29, 2018	September 1, 2019
Vehicle Purchase Tax Law	December 29, 2018	July 1, 2019
Corporate Income Tax Law (Revised)	December 29, 2018	December 29, 2018
Environment Protection Tax Law (Revised)	October 26, 2018	October 26, 2018
Tonnage Tax law	October 26, 2018	October 26, 2018
Individual Income Tax Law	August 31, 2019	January 1, 2019
Tobacco Tax Law	December 27, 2017	July 1, 2018
Value Added Tax Law	Second draft released on September 6, 2024
Consumption Tax Law	Draft released on December 3, 2019
Land Appreciation Tax Law	Draft released on July 16, 2019
City and Town Land Use Tax	To be developed
Property Tax Law	To be developed

Notably, the Tariff Law is not a simple upgrade of the content in the Import and Export Tariff Regulations. Instead, it explicitly clarifies the content related to tariff collection that is currently scattered across various measures and announcements and organizes it into legal provisions. The law focuses on three key tax-related elements: taxable value, commodity classification, and rules of origin. It also introduces new institutional concepts to comprehensively improve the customs collection system.

Some noteworthy changes include:

• Several existing provisions and practices have been elevated to the level of law, such as specifying the obligations of cross-border e-commerce platforms for tariff withholding and implementing consolidated taxation.
• The rules governing the origin of goods have been improved to better align with the application of tariff rates.
• Customs authorities are now explicitly empowered to confirm the amount of tax payable within three years from the date of payment or release of goods by taxpayers or withholding agents. This limitation does not apply to smuggling offenses.
• The deadline for taxpayers to apply for the refund of overpaid taxes has been extended to 3 years.
• Force majeure has been added as a circumstance for the re-export of goods entering or leaving the country.
• Measures have been introduced to address taxpayers’ outstanding tax liabilities, including allowing customs to notify immigration authorities to impose exit restrictions on taxpayers or their legal representatives in accordance with regulations.
• In cases where actions result in a reduction of taxable amounts without a reasonable commercial purpose, the country can now take anti-avoidance measures by adjusting tariffs.
• Three new administrative penalty rules have been added.

Insights from Dezan Shira & Associates

After the implementation of the Tariff Law, foreign trade operators enjoy greater convenience of customs clearance while also facing higher compliance requirements. Take the newly added “tax amount confirmation” system as an example: even if there is no violation, Customs can still confirm and collect the corresponding tax amount within three years from the date of tax payment or release of goods. Therefore, businesses need to further enhance their import and export compliance levels. They should also comply with provisions such as the Tariff Law and the Customs Inspection Regulations, and properly keep customs documents and records for three years to prepare for subsequent customs inspections or tax amount confirmations. Additionally, taxpayers should promptly pay taxes, especially avoiding actions such as transferring or concealing property that hinders Customs from recovering tax payments.

Extension of individual income tax payment period for equity incentives in listed companies

On April 26, the Ministry of Finance (MOF) and the State Taxation Administration (STA) jointly released the Announcement on Individual Income Tax Policies Regarding Equity Incentives for Listed Companies (MOF STA Announcement [2024] No.2). This policy is effective from January 1, 2024, until December 31, 2027.

The announcement specifies that for domestic listed companies granting stock options, restricted stock, and equity incentives to individuals, after filing with the competent tax authority, individuals can pay individual income tax (IIT) within a period of up to 36 months from the date of exercising stock options, lifting restrictions on restricted stock, or acquiring equity incentives. If a taxpayer leaves during this period, they must settle all taxes before departure. Previously, the deferred tax payment period for stock incentives in listed companies was 12 months.

Domestic listed companies fall into the following three categories:

• Companies whose stocks are traded on the Shanghai Stock Exchange
• Companies whose stocks are traded on the Shenzhen Stock Exchange
• Companies whose stocks are traded on the Beijing Stock Exchange

Insights from Dezan Shira & Associates

The adjustment to the tax policy for equity incentives for executives and other personnel in listed companies comes after more than seven years. The core purpose is to support innovation and development within enterprises. Stock options, equity awards, and other incentives often involve substantial amounts, and a one-time tax payment can create a tax burden for the recipients. Extending the deferred tax payment period from 12 months to 36 months aims to alleviate the tax pressure on the rewarded group, thereby further motivating scientific and creative personnel.

SAFE released measures to improve foreign exchange management in foreign trade

On April 3, 2024, the State Administration of Foreign Exchange (SAFE) issued the Notice on Further Optimizing the Management of Trade and Foreign Exchange Business (Hui Fa [2024] No. 11). The purpose of this notice is to further streamline the management of foreign exchange and promote high-quality development in trade.

The key points of the Notice are summarized as follows:

Key Points Proposed in Hui Fa [2024] No.11
Optimization of registration management for “Directory of Enterprises for Foreign Exchange Receipts and Payments for Trade”:
The requirement for SAFE approval of registration has been canceled. Instead, enterprises engaged in foreign exchange receipts and payments for trade should directly register with domestic banks. Before conducting the first receipt or payment transaction, enterprises engaged in foreign exchange receipts and payments for trade should submit the “Application Form for Enterprises for Foreign Exchange Receipts and Payments for Trade” to a domestic bank. Banks will input enterprise registration information into the “Digital SAFE” platform, and enterprises can check the registration results through the platform. When there are changes to the information of registered enterprises, they must submit relevant materials within 30 days. Banks will verify the authenticity of basic enterprise information and retain the submitted materials for reference.
Simplification of trade receipt and payment procedures for customs special supervision areas
For cases where discrepancies arise in import and export units due to the operational needs of enterprises within customs special supervision areas, banks may process transactions after verifying their authenticity, reasonableness, and relevant documentation according to business principles.
Expansion of the scope of registration exemption for special foreign exchange refund in trade in goods:
Banks’ authority to handle special refunds (excluding returns or refunds exceeding 180 days) for Class A enterprises engaged in goods trade has been increased from the current equivalent of $50,000 to the equivalent of $200,000.
Streamlining foreign exchange management for Class B and c enterprises:
In response to the practical needs of Class B and C enterprises, banks can provide services for deferred payment and settlement exceeding 90 days after registration with SAFE.
Clarification of materials for foreign exchange registration for trade in goods:
Relevant provisions regarding foreign exchange registration for trade in goods have been consolidated, and the required materials for handling such registrations have been specified.

Insights from Dezan Shira & Associates

The introduction of the above policies aims to help businesses simplify processes and conveniently complete relevant procedures at banks. Banks will focus on the review of authenticity and reasonableness of transactions, requiring companies to maintain transaction transparency, ensure compliance with regulations, and prepare relevant documentation for review. Companies can, under eligible conditions, reasonably plan for repatriation operations to reduce administrative burdens. They can also manage cash flow more flexibly, minimizing the impact on business development due to short-term fund allocation issues.

STA issues guidelines on tax issues for personnel "going global"

The STA has released has released the Guidance on IIT for “Going Global” Individuals (hereinafter referred to as the ‘Guide’). The Guide aims to assist individuals in better handling overseas tax and fee matters. It covers various aspects, including IIT policies, calculations, declarations, tax exemptions, tax agreements, service measures, and social security agreements. A total of 57 common issues are listed in the Guide, presented in the form of policy references, regulations, and scenario-based Q&A. The Guide is based on effective legal regulations up to the end of March 2024.

‘Going Global’ individuals refer to Chinese nationals who obtain overseas income due to being dispatched by domestic institutions to work abroad, independently investing abroad, or independently providing services abroad.

Key points in the Guide include:

• IIT policies: This category covers principles for determining tax residency for residents, tax obligations, taxation scope for foreign income, tax rates, exemptions, foreign currency conversion, etc. It also provides detailed explanations regarding individual income tax policies for special situations, such as residents working abroad, equity incentives for overseas publicly listed companies, one-time annual bonuses received abroad, and overseas investments.
• IIT calculation: This category involves regulations for calculating income from both domestic and foreign sources. It includes provisions for comprehensive income withholding, annual reconciliation, special deductions, prepayment and final settlement of business income, interest, dividends, royalties, property leasing and transfers, occasional income, etc.
• IIT filing: This category explains the deadlines, locations, competent tax authorities, and practical methods for filing IIT. It covers online filing, mailing, authorized representation, and in-person filing at tax offices.
• Tax credits and concessions: Detailed explanations are provided for general rules, credit rules, credit limits, calculation methods, and tax administration provisions related to tax credits and concessions. Additionally, it covers relevant content on tax concessions.
• Individual provisions in tax treaties: This category pertains to provisions in tax treaties related to residents, dividends, employment income, director’s fees, artists and athletes, teachers, and researchers.
• Service measures: It offers various service measures, including issuing certificates of Chinese tax residency, tax treaty inquiries, country-specific investment tax guides, and bilateral consultations for tax disputes.
• Bilateral social security agreements: It provides information related to bilateral social security agreements.

Insights from Dezan Shira & Associates

The Guide aims to support and assist individual taxpayers who venture beyond their home country to participate in international competition. It helps them better understand and respect China’s tax regulations, enabling improved development and competitiveness in the international market. Particularly for individuals working, investing, or residing across borders, strict compliance with tax authorities’ requirements is essential. In case of any tax-related issues, seeking comprehensive guidance and services from professional tax experts is highly recommended.

Other key tax updates in April

In addition to the above, other tax-relevant updates in April include:

• STA optimizing the tax policy for hiring key groups: The STA, along with other departments, jointly issued an announcement to optimize the implementation of tax policies for hiring key groups and for self-employed retired soldiers who venture into entrepreneurship. It clarifies details related to eligibility for tax benefits, document retention, deduction limits, and the order of tax payments. Additionally, it specifies the entities eligible for policy benefits when hiring key groups and self-employed retired soldiers. The announcement is effective from January 1, 2024.
• STA clearing rules on reverse invoicing: The STA released a circular outlining rules for resource recycling companies to issue “reverse invoices” to individuals who sell scrapped products. These invoices must be marked with the phrase “Acquisition of Scrap Products.” The announcement provides detailed provisions regarding the conditions for reverse invoicing, invoice management, tax incentives, reporting, payment, and information management.
• Implementation details for subsidies on trading used cars for new ones: The Ministry of Commerce, MOF, and other seven departments jointly released the Implementation Rules for Subsidies on Trading Old Cars for New Ones. According to the Implementation Rules, from January 1 to December 31, 2024, individual consumers who scrap specific old cars and purchase new ones will receive a one-time fixed subsidy. The rules also establish an information-sharing mechanism among relevant departments to ensure policy implementation and set penalties for related violations.
• Expansion of value-added telecommunications business opening pilot: The Ministry of Industry and Information Technology (MIIT) issued a notice announcing the expansion of the pilot program for further opening up value-added telecommunications services to foreign investment. The pilot areas include Beijing, Shanghai, Hainan, and Shenzhen. Specific restrictions on foreign ownership in certain value-added telecommunications services will be lifted. Foreign-invested telecom companies must apply to the MIIT for approval to operate value-added telecommunications services under the pilot program and comply with relevant laws, regulations, and pilot approval provisions during their business operations.

Also read:

• China Monthly Tax Brief: March 2024
• China Monthly Tax Brief: February 2024
• China Monthly Tax Brief: January 2024

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