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Circular on Levying Withholding Tax on PRC-Sourced Interest Income Derived by Non-Resident E…

November 24, 2008

Circular on Levying Withholding Tax on PRC-Sourced Interest Income Derived by Non-Resident Enterprises

On November 24, 2008, the State Administration of Taxation issued the Circular on Levying Enterprise Income Tax ("EIT") on PRC Originated Interest Income Derived by Non-Resident Enterprises (the "Circular"), effective January 1, 2008, retroactively. The Circular provides that when PRC domestic financial institutions make payments of interest to foreign banks and when foreign-invested financial institutions make payments of interest offshore, they shall withhold and make payments of EIT on such interest payment on behalf of the foreign banks or other entities that receive the payment. The Circular invalidates a circular issued in 1997 which suspended collection of withholding EIT on inter-bank and intra-bank loan interests paid by foreign-invested financial institutions to offshore entities.


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