Administration of Source Withholding of Income Tax of Non-Resident Enterprises

On January 9, 2009, the State Administration of Taxation released Tentative Measures for the Administration of Source Withholding of Income Tax of Non-Resident Enterprises (the "Measures"), effective retroactively on January 1, 2009. The Measures confirm the definition of non-resident enterprises, and further stipulate that stock interest, dividends, bonuses and other right-related investment revenue, rent, income from royalties, income from property transfer and other income on which enterprise income tax is levied, shall be subject to source withholding. The Measures also stipulate detailed collection procedures and documentation requirements for source withholding of non-resident enterprises. In addition, the Measures provide that if a transfer of equity in a domestic enterprise occurs between two non-resident enterprises, the transferor should, on its own or through an agent, file the tax return with the tax authority where the domestic target enterprise is located. The target enterprise should assist in the collection of the tax and submit a copy of the equity transfer agreement to the tax authority when applying for a change of tax registration as a result of the transaction. The Measures serve as guidance for non-resident enterprises on how to pay tax for China-sourced income.

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