Asia Tax Bulletin - Winter 2015/16

China (PRC)

Multilateral Competent Authority Agreement on automatic exchange of Information

On 16 December 2015, the PRC became the 77th jurisdiction to join the OECD Automatic Exchange of Information Agreement (2014) (MCAA) on the introduction of the automatic exchange of information in tax matters on a reciprocal basis. China will exchange information automatically based on the international standard developed by the OECD.

Construction project, real estate and finance sectors

At a meeting of the Ministry of Finance on 28 December 2016, the Minister of Finance stated that the transformation of business tax to VAT, which started in 2012, will be extended in 2016 to include the construction, real estate, and financial and consumer service sectors. These are the remainder of the most important sectors currently subject to business tax. Details will be published in due course.

Individual income tax deduction for health insurance premiums

The Ministry of Finance, State Administration of Taxation and China Insurance Regulatory Commission jointly issued a notice (Cai Shui [2015] No.126) concerning the implementation of the individual income tax policy on deduction for health insurance premiums. This was announced in an earlier notice (Cai Shui [2015] No.56) in May 2015.

The policy will be introduced as a trial project in Beijing, Shanghai, Tianjin, Chongqing and 27 other major cities. The notice Cai Shui [2015] No.126 provides that from 1 January 2016 an annual amount of CNY2,400 (CNY200 per month) paid by employees, sole proprietors or partners of a partnership to a qualified commercial health insurance scheme is, in addition to the monthly standard deduction, deductible for individual income tax purposes.

Transfer pricing agreements

The State Administration of Taxation (SAT) released the China Advance Pricing Agreement (APA) Report of 2014 on 21 December 2015. According to the report, 9 APAs (3 unilateral and 6 bilateral) were concluded in 2014. The total number of APAs entered into in 2014 is considerably less than the previous year in which 19 (11 unilateral and 8 bilateral) were concluded. Both Chinese and English versions can be downloaded from the website of the SAT.

VAT exemption for cross-border e-commerce in Hangzhou

On 18 December 2015, the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) jointly issued a notice (Caishui [2015] No.143) concerning the value added tax (VAT) exemption policy applicable to the export of goods through e-commerce in the cross-border e-commerce pilot area of Hangzhou (this is the city in which China's largest e-commerce enterprise, Alibaba, is located).

Goods exported by enterprises located in Hangzhou without any valid purchase certificates being issued are exempt from VAT until 31 December 2016, provided that the following conditions are satisfied:

the exported goods are supervised by what is known as a 'Single Window platform'; and export enterprises keep accurate records of the information available on the suppliers of the exported goods. Taxation of income from qualified investment funds

The Ministry of Finance (MoF), the State Administration of Taxation (SAT) and the China Security Supervision Committee jointly issued a notice (Cai Shui [2015] No. 125) on 14 December 2015 concerning the taxation of mutually recognised investment funds in mainland China and Hong Kong. The notice applies from 18 December 2015 and its content is summarised below.

Capital gains on the trading...