China: Tax on charter hire and freight
Time：2014-08-20
Browse：108
These measures which are called “Provisional Measures” at this time will require non-resident enterprises to declare and pay tax either directly or through appointed agents. The word “Provisional” should not give the impression, however, that these measures are in any way temporary.
Under the new rules, International Transportation Business has been defined as transportation in to or from Chinese ports, and all such “ITB” will be subject to the Enterprise Income Tax. This will include charter hire.
A tax withholding agent may also be authorised by the Tax Authorities in China. That could be a Chinese contractual counterparty, like a charterer.
This development represents a significant development in the Chinese Tax Code as it may apply to international shipping.
In the attached note, Wang Jing & Co. set out details of the new provisions and how they may apply to shipping.
Advice
Members, whether owners or charterers, that are in the category of a “Non-Resident Taxpayer”, i.e.: a company incorporated outside of China and whose actual administration is outside of China, will be subject to these new provisions. This includes foreign companies that may have operations in China.
It will be very important for members affected to familiarise themselves with these new provisions and be ready to comply with them.
They will also need to be aware of the possibility that their Chinese charterer counterparty may act as a withholding agent to collect the due taxes, and it will be important to check in advance if the charterer will act in such capacity.
For any member that may be based in a country that enjoys a tax treaty with China, it is possible to apply for an exemption in line with those treaties. It will be important to check in advance whether such situation applies and members should seek to make such enquiries at the earliest opportunity.