Claiming tax treaty benefits for PRC non residents
China’s State Administration of Tax has simplified the process of claiming benefits from international double tax agreements. The Administrative Measures for Non Resident Taxpayers to Claim Treaty Benefits (Public Notice 2019 No. 35) was released in October 2019 and will take effect from January 2020, replacing the current rules, which were enacted in 2015. The full text of the Administrative Measures is available here.
Under the new process, the application process is optimized by requiring the applicant to keep documents on hand for future inspection, easing the submission requirements and clearly setting out taxpayer responsibilities. The new system for claiming treaty benefits reduces the overall burden for most non resident taxpayers and does away with excessive bureaucratic formalities.
Self Assessment
The application process now works under a self assessment principle, giving taxpayers the responsibility to declare eligibility, claim benefits and keep documentation. Self assessment involves checking their status against the criteria, while claims are made by submitting an “Information Reporting Form for Taxpayers Claiming Tax Treaty Benefits”. Supporting documents should be kept on hand and provided to government authorities upon request. Claiming treaty benefits on withholding tax is carried out by providing the withholding agent with the relevant forms after carrying out the self assessment and preparing documents.
Preparing Documentation
Non resident taxpayers previously had to submit a form demonstrating non resident status as well as a form regarding their eligibility for the treaty benefits being claimed. Under the new process, applicants fill out a combined “information reporting form”. By requiring taxpayers to retain supporting documents instead of formally submitting them along with the form, the process has been considerably abbreviated.
The required documents include:
- Certificate of tax residence in a jurisdiction signatory to a double tax agreement with the PRC
- Proof of proprietorship over the enterprise
- Proof of beneficiary status for income generating assets such as dividends, royalties and interests
- Any other documents supporting claims to treaty benefits
The documentation should be kept on hand for ten years from the date of filing the claim, in case they are requested by the tax authorities at any point.
Chinese translations are required for all foreign language documents. Incomplete information or failure to comply with audits will result in ineligibility for the benefits. Any income taxes that have not been fully paid may lead to the amount being deducted from other income sourced in China.
Taxpayer Responsibilities
Applicants for treaty benefits are required to provide complete and accurate self assessments, including evidence of full compliance with tax laws and only claiming benefits from relevant eligible treaties. Any inaccuracies will result in legal consequences. Withholding agents must verify that the information reporting form has been fully completed, but are not responsible for the accuracy of the information. Therefore, although the claims process may be simplified, the self assessment must be thoroughly complete and accurate with no room for error.
It is strongly recommended that the self assessment be carried out by a professional services firm. The State Tax Administration is likely to employ multi level analysis in order to flag applications to review. There is limited scope for corrections if any inaccuracy or inconsistency is identified by the authorities once the claim has been filed. Therefore, while these changes ease the application process, they also hold applicants to a higher standard ahead of time.
Should you require any assistance with filing income taxes in mainland China, whether as a resident or non resident, our bilingual tax services staff can prepare your statements and documentation to ensure compliance, peace of mind, and the optimal rate for your individual situation.