SAT Releases Tax Exemption Guidelines for Overseas Corporate Income

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Jul. 26 – The State Administration of Taxation recently released the Operating Guidelines on Tax Exemptions for Overseas Corporate Income, effective January 1, 2010.

SAT Announcement [2010] No. 1, issued on June 28, indicates that China has decided to give similar tax credit to taxes paid abroad by the Chinese branch of a non-resident enterprises for its foreign-source income, as it gives to resident enterprises and residents.

According to the guideline, creditable foreign income tax means the CIT derived from sources outside of China which have actually been paid to foreign authorities in accordance with the relevant provisions of the tax law. But the creditable foreign income tax does not include interest or penalties paid to foreign authorities due to underpayment or late payment, or taxes which have already been exempted or deducted from income according to other relevant regulations.

The guideline also defines certain issues, including the calculation of foreign tax credit, definition of foreign branches and the corresponding tax year, foreign tax credits when calculating the amount of taxable income, definition of dependent tax status, income derived from Hong Kong, Macau and Taiwan regions, and the application of priority tax agreements.