In this China Monthly Tax Brief for February 2025, we highlight significant taxation developments for businesses and individual taxpayers. Among others:
- The State Taxation Administration (STA) has optimized the application process for the China Tax Residency Certificate, marking a significant update in tax administration practices.
- In a move aimed at further enhancing the competitiveness of China’s high-tech industries, several government bodies have jointly revised the import tax policies for major technical equipment, effective from March 1, 2025.
- The STA has also released measures for the annual settlement of tax on comprehensive individual income. Taxpayers are encouraged to review the new guidelines carefully and take full advantage of the streamlined procedures to maximize refund benefits and ensure compliance.
- Additionally, the MOF has announced an extension of the preferential policy for the cultural construction fee from January 1, 2025, to December 31, 2027.
- The STA has issued a Q&A to clarify the VAT treatment applicable to carbon emission rights trading and the trading of certified voluntary emission reductions (CERs).
- Recent US-China tariff developments are directly raising import costs, prompting companies to reevaluate their cost structures.
STA’s new guidelines optimized the application process of the China Tax Residency Certificate application
The State Taxation Administration (STA) has issued the STA Announcement No. 4 of 2025, introducing comprehensive revisions and clarifications to application of the “China Tax Residency Certificate” (hereinafter referred to as the “Tax Residency Certificate”). Effective April 1, 2025, this new announcement replaces the previous guidelines set out in the STA Announcement [2016] No.40 and the STA Announcement [2019] No.17, marking a significant update in tax administration practice.
Under the revised framework, both enterprises and individuals are now eligible to apply for a Tax Residency Certificate for any calendar year in which they qualify as Chinese tax residents. Applications can be processed entirely online through the full digital workflow, although traditional in-person services at local tax offices remain available. Special provisions have been established for certain entities that do not have independent legal status—such as domestic branches of Chinese resident enterprises, individual industrial and commercial households, sole proprietorships, and partnership enterprises—which must now apply through their respective head offices or principal stakeholders.
Applicants are required to submit the standardized application form along with relevant supporting documentation. For those seeking treaty benefits, additional documents such as contracts, agreements, resolutions from shareholder or board meetings, and payment vouchers must be provided. In cases where treaty benefits are not pursued, materials verifying the authenticity of the application’s purpose are required. Personal applicants should also supply identity details, residential proof, and other information as specified by the tax authorities. Moreover, if the applicant needs to indicate a specific relationship between a special entity and the individual in the certificate’s remarks, corresponding registration documents must be submitted for review.
Once a complete application is received, the tax authority is obliged to process it within seven working days or issue a written explanation if the application is denied. Applicants with special formatting requirements from counterpart tax authorities should submit a written explanation and sample format to facilitate compliance.
These updates, which include an expanded scope of application, a fully online processing system, updated certificate content, and shorter processing times, are designed to significantly enhance tax administration efficiency. Taxpayers are advised to review the new guidelines promptly to ensure compliance and to take full advantage of the streamlined procedures in managing cross-border tax matters.
| Applying for China Tax Residency Certificate: Highlights of the New Guidelines | |
|---|---|
| Eligibility | Enterprises or individuals can apply for the China Tax Residency Certificate for any calendar year in which they become a Chinese tax resident, by submitting an application to the competent tax authority.
Individuals: Those who have a domicile in China, or those without a domicile but have resided in China for a full year. Enterprises: Those established in China according to law, or those established under foreign (regional) laws but with their actual management located in China. |
| Application channels | Both enterprises and individuals can complete the entire process online or visit the tax service hall of the competent tax authority. |
| Special entity application regulations | Domestic and foreign branches of Chinese resident enterprises, domestic individual businesses, domestic sole proprietorships, and domestic partnerships cannot directly apply for the China Tax Residency Certificate as they do not have legal person status. The certificate must be applied for by the Chinese head office or relevant individuals to the competent tax authority.
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| Application materials | Applicants need to submit the China Tax Residency Certificate application form and relevant supporting documents.
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| Application acceptance and processing time | Complete applications will be accepted. Incomplete applications will not be accepted, and the tax bureau is obligated to inform the applicant of the required supplements and corrections in one go. From the date of acceptance, the tax authority will complete the processing within 7 working days or provide a written explanation for the refusal to issue the certificate. |
| Special requirements | If the counterpart authority has special requirements for the format of the China Tax Residency Certificate, the applicant should provide a written explanation and format to facilitate processing by the tax authority according to regulations. |
Adjustment of import tax policies for major technical equipment
In a move aimed at further enhancing the competitiveness of China’s high-tech industries, several government bodies—including the Ministry of Industry and Information Technology (MIIT), the Ministry of Finance (MOF), the General Administration of Customs (GAC), the STA, and the National Energy Administration (NEA)—have jointly revised the import tax policies for major technical equipment.Effective March 1, 2025, these updates come with the release of new directories:
- the Directory of Major Technical Equipment and Products Supported by the State (2025 Edition);
- the Directory of Key Components and Raw Materials for Major Technical Equipment and Products Imported (2025 Edition); and
- the Directory of Major Technical Equipment and Products Not Exempt from Import Duties (2025 Edition).
The revised management measures aim to streamline the application process and clarify eligibility criteria, review procedures, and oversight mechanisms. enterprises and nuclear power project owners seeking tax exemption will be subject to annual assessments and re-evaluations every three years by the relevant authorities. Notably, enterprises that obtain tax exemption qualifications have the option to waive the import VAT exemption; however, once waived, they cannot reapply for a period of 36 months. Moreover, tax-exempt enterprises must adhere to customs regulations and the Administrative Measures for the Reduction and Exemption of Import and Export Goods of the People's Republic of China when processing tax reductions or exemptions for key components and raw materials.
It is important to note that for certain projects and enterprises—such as state-encouraged domestic and foreign investment projects, projects financed by foreign government or international financial organization loans, processing trade enterprises, advantageous industry projects in central and western regions, and technology transformation projects by foreign-invested entities—import taxes will still be levied on self-use equipment listed in the "Directory of Major Technical Equipment and Products Not Exempt from Import Duties" and on associated technology, accessories, and spare parts as per contractual agreements.
This adjustment in import tax policy reflects China’s broader efforts to promote technological advancement and ensure a stable, predictable fiscal environment for investors operating in the high-tech sector.
STA released measures for the annual settlement of tax on comprehensive individual income
Between 2019 and 2023, China’s tax authorities issued a series of formal notifications detailing the annual settlement process for comprehensive individual income tax (IIT). Building on these developments, the STA has now officially promulgated the Administrative Measures for the Annual Settlement of Comprehensive Individual Income Tax, effective February 26, 2025.Under the new framework, the annual settlement is intended solely for resident individuals, while non-residents are exempt. It focuses on reviewing and reconciling previously prepaid tax amounts—identifying omissions and summarizing income and expenses on an annual basis to adjust for overpayment or underpayment. Notably, certain categories of income, such as interest, dividends, rental income, and other separately taxed items, are excluded from this comprehensive settlement.
For the 2024 tax year, the settlement window is set from March 1 to June 30, 2025. Taxpayers without a domicile in China who plan to leave the country are permitted to complete the settlement process before their departure. In an effort to streamline operations, the initial phase of the settlement (March 1–March 20) will offer an appointment service via the individual income tax app starting February 21, after which walk-in services will be available.
Moreover, the revised measures introduce targeted refund strategies. Taxpayers meeting refund criteria—especially those facing significant financial burdens (such as individuals supporting both elderly and young dependents, those with heavy medical expenses, experiencing substantial income declines, or earning less than RMB 60,000 (US$8,400) annually while having already prepaid tax)—will receive priority in refund processing. Additionally, the system now facilitates direct access to personal pension contribution information, simplifying the declaration process and ensuring taxpayers can readily benefit from the associated tax deduction.
These updates aim to optimize the annual settlement process, enhance service efficiency, and better address the diverse needs of taxpayers in cross-border tax matters. Taxpayers are encouraged to review the new guidelines carefully and take full advantage of the streamlined procedures to maximize refund benefits and compliance.
Continuation of preferential policy for cultural construction fee
The MOF has announced an extension of the preferential policy for the cultural construction fee from January 1, 2025 to December 31, 2027. Under the new policy, the central government's portion will be reduced by 50 percent, while local governments can choose to reduce their share by up to 50 percent based on regional conditions. Additionally, fiscal authorities at all levels are expected to coordinate funding to support cultural development and offer mechanisms for offsetting or refunding previously collected fees.This initiative aims to ease the compliance burden for advertising service providers, enhance operational efficiency, and accelerate the shift of the advertising industry toward high-quality development. The policy also underscores the advertising sector's vital role in brand building, stimulating consumer demand, and strengthening overall economic vitality.
The cultural construction fee applies to entities providing advertising and entertainment services within China. This includes advertising media and outdoor advertising operators, as well as businesses and individuals offering entertainment services. The fee covers a broad range of promotional activities—from print and broadcast advertising to digital media and outdoor displays, as well as entertainment services that combine venue provision with related services.
The fee is levied at a rate of three percent and must be reported on either a monthly or quarterly basis. Existing exemptions remain in place. For example, small-scale value-added tax (VAT) taxpayers with monthly sales not exceeding RMB 20,000 (US$2,800) or quarterly sales not exceeding RMB 60,000 (US$8,400) are exempt from this fee. Similarly, taxpayers below the VAT threshold are also exempt. Moreover, for foreign advertising entities without a local presence, the domestic service recipient is responsible for withholding the fee.
These extended preferential measures are designed not only to support cultural initiatives but also to reduce financial and administrative pressures on the advertising industry, paving the way for a more vibrant and competitive market landscape.
STA clarifies VAT policy for carbon trading
The STA has issued a Q&A to clarify the VAT treatment applicable to carbon emission rights trading and trading of certified voluntary emission reductions (CERs). According to the STA, Cai Shui [2016] No. 36 defines intangible assets as non-physical assets that deliver economic benefits. These include technology, trademarks, copyrights, goodwill, natural resource use rights, and other intangible equity assets. Notably, “other intangible equity assets” encompass rights such as operating infrastructure assets, public utility concessions, quotas, and operating rights.For taxpayers engaging in carbon emission rights or CER trading, VAT should be calculated and paid based on the classification of the transaction as “intangible assets – other equity intangible assets – quotas.” The applicable VAT rate for these transactions is 6 percent.
This clarification provides crucial guidance for market participants, ensuring a standardized approach to VAT compliance in the burgeoning carbon trading sector. For more details, please refer to the STA’s official Q&A on the China Tax website.
New developments in China-US trade: Strategies for foreign investors amid tariff escalation and export controls
On February 1, 2025, the US government announced an additional 10 percent tariff on all goods imported from China, citing concerns related to fentanyl and other issues. Notably, this tariff has now also applied to Hong Kong for the first time. According to international media reports, goods manufactured, imported, or transshipped in Hong Kong will be subject to the same customs declaration procedures and additional 10 percent tariffs as products from mainland China. Even if goods are produced, assembled, or processed in mainland China or Hong Kong and later rerouted via third parties (such as Singapore, Taiwan, or South Korea), they may still be classified as originating from China or Hong Kong, thereby attracting the extra tariff.Furthermore, beginning on March 12, 2025, the U.S. government will impose a 25 percent tariff on all imported steel and aluminum, with related derivative products also being subject to tariffs. In response, China will counteract by levying additional tariffs on certain U.S.-origin imports starting February 10, 2025. Specifically, coal and liquefied natural gas imported from the United States will face a 15 percent tariff, while crude oil, agricultural machinery, large displacement vehicles, and pickups will be subject to a 10 percent tariff.
In addition to these measures, China has announced export controls on rare earth minerals and elements critical to the production of semiconductors and high-tech components, including tungsten, tellurium, bismuth, molybdenum, and indium.
Read more about the US-China tariff developments here:
Implications for foreign investors:
Foreign investors must recognize that global trade uncertainty persists. When making investment and operational decisions, it is crucial to consider these external variables and potentially reconfigure supply chain strategies to mitigate the risks posed by new tariffs.
The tariff increases will directly raise import costs, prompting companies to reevaluate their cost structures. Investors may need to explore alternative suppliers or substitute raw materials to maintain market competitiveness.
Moreover, strengthening market risk analysis is essential. Companies should assess how changes in tariffs could affect market demand, pricing, and consumer behavior, and develop proactive strategies to address these shifts.
Given the long-term and complex nature of China-US trade relations, foreign investors may need to adjust their long-term strategic plans. This could involve revisiting market positioning, increasing investments in research and development, rethinking target investment destinations, and considering greater localization of operations.
By proactively adapting to these evolving trade policies, foreign investors can better navigate the heightened uncertainty and sustain growth in this challenging environment.
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