China’s new Stamp Tax Law takes effect July 1, 2022 – there will be some updates to the existing system of taxation, such as the simplification of tax compliance, changes to some tax rates, and new exemptions.
On June 10, 2020, the Stamp Tax Law was passed by the Standing Committee of the 13th National People’s Congress at the 29th session, which will take effect from July 1, 2022.
The current governing regulation, the Interim Regulations of the People’s Republic of China on Stamp Tax (the “Interim Regulations”) promulgated by the State Council on August 6, 1988, will be repealed simultaneously by then.
Compared to the Interim Regulations, the Stamp Tax Law maintains most of the current stamp taxation system generally, but at the same time, there are some noteworthy changes, including appropriate simplification of tax items and tax cuts.
The major changes are summarized below.
Some highlights for stamp tax management
Bearing the changes of the Stamp Tax Law in mind, we would also like to bring some points to your attention in dealing with stamp tax in your daily operations:
- Previously, the stamp tax on security transactions was regulated by documents released by the Ministry of Finance and the State Taxation Administration. Now, with the release of the Stamp Tax Law, this matter will be regulated by law, which has higher legal force. The stamp tax on securities transactions will continue to be levied on the transferor of securities transactions rather than the transferee and the applicable tax rate remains at 0.1 percent of the turnover.
- The Stamp Tax Law stipulates that the basis for calculation of stamp tax excludes the VAT amount specified in the taxable contract or property transfer document. Nevertheless, in the case where the VAT amount is not specified in the taxable documents, the entire amount could be subject to stamp tax without deducting any VAT amounts. So, it is suggested that the taxpayers list the VAT amount separately from the contract price in the taxable documents.
- Direct donation can be exempted from stamp tax, according to the Stamp Tax Law, which is different from that in the Corporate Income Tax Law, where donation has to be done through charitable organizations or People’s Governments of county level and above and their departments to be tax exemptible. Businesses are advised to pay attention to this difference and not dismiss or overlook this stamp tax saving treatment when making direct donations.
- It should be noted that the loan contract signed by enterprises and non-financial organizations are not subject to stamp tax. Besides, according to Cai Shui (2017) No.77, the loan contracts signed by financial institutions and micro and small-sized enterprises can be exempt from stamp tax, and the duration of the policy was extended to December 31, 2021, by the Ministry of Finance and the State Taxation Administration Announcement (2021) No.6. Businesses should be aware of this policy and use it to save tax for loan contracts if they are one of the eligible enterprises.
Bigger background: Law-based tax administration
In 2015, the State Taxation Administration released the Guiding Opinions on Comprehensively Promoting the Governing of Taxes according to Law (Shui Zong Fa (2015) No.32), stipulating that China will accelerate the process of upgrading relevant tax regulations into law, to improve the certainty of tax policies, enhance the authority of the tax documents, and ensure the efficiency of tax administrations. This is an important part of China’s broader efforts to achieve rule of law, that is, law-based governance of the country.
With the promulgation of the Stamp Tax Law, China has made laws for 12 of the 18 existing taxes. Businesses are well advised to keep a close eye on the future developments of China’s tax laws as it is related to how they will pay tax in China.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at [email protected].
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