China – Tax on “foreign” parties conducting international transportation business

Members trading to China and entering into contracts with Chinese entities may already be familiar with the legal requirement to pay tax on sums due from international transportation. Previously the legal requirement was not fully codified and not rigorously enforced. However, in June 2014, the State Administration of Taxation of China issued a Notice on “Provisional Measures on the Collection of Tax on Non-Resident Taxpayers engaged in International Transportation Business” (the Notice), which sets out the requirement for non resident enterprises to pay tax and which seeks to clarify and improve enforcement of the tax against “foreign” parties involved in the international transportation business.   

PRC lawyers, Wang Jing & Co, have provided a summary advice on the contents of the Notice (click here), including an outline of who should pay the tax, how it is calculated and how it is collected.

Whilst Enterprise Income Tax is payable for “all transportation into or from Chinese ports”, there is still uncertainty as to the actual scope and implementation of the Notice. In order to help further clarify the position, Wang Jang have also provided answers (where possible) to questions that have been frequently asked about the Notice (click here) since publication.

Given the potential tax liability, Members should therefore review their existing charters with Chinese entities to determine which party is ultimately to bear liability for the tax and consider making express provisions in future charters. If Members are to bear the tax liability, Members will of course need to ensure that they comply with the requirements in the Notice.