China’s new stamp duty law comes into effect on 1 July 2022. This will bring a number of updates to the existing tax system, such as simplified compliance, changes to some tax rates and new tax exemptions.
On 10 June 2020, the Stamp Tax Law was adopted by the Standing Committee of the 13th National People’s Congress at its 29th session. The current regulation, the “Provisional Regulations of the People’s Republic of China on Stamp Tax” promulgated by the State Council on August 6, 1988, will be repealed upon its entry into force.
Compared to the interim regime, the Stamp Duty Act basically maintains the current stamp duty system. At the same time, there are some notable changes, including appropriate simplification of tax positions as well as tax reductions.
Some highlights of the new stamp duties
In view of the changes to the Stamp Duty Act, we would like to draw your attention to a number of points that you should bear in mind in your day-to-day dealings with stamp duty:
- Earlier, stamp duty on securities transactions were regulated by publications of the Ministry of Finance, which were circulated by the State Tax Administration. Now, with the adoption of the Stamp Duty Act, they are regulated by a law that has higher legal force.
- Stamp duty on securities transactions will continue to be levied on the transferor of the securities transaction and not on the transferee. The applicable tax rate remains at 0.1 per cent of turnover.
- The law states that the basis of assessment for the charge is the net amount of the transaction (for example, the contract or property purchase), i.e. the amount excluding VAT. Nevertheless, the entire amount may be subject to stamp duty if the VAT amount is not stated in the taxable document. We therefore recommend listing the VAT amount separately from the price in the taxable documents.
- Direkte Spenden können nach dem Stempelsteuergesetz von der Stempelsteuer befreit werden. Das unterscheidet sich von der Regelung im Körperschaftsteuergesetz, wo Spenden über gemeinnützige Organisationen oder staatlichen Stellen der Kreisebene und darüber und deren Abteilungen erfolgen müssen, um steuerbefreit zu sein. Unternehmen wird empfohlen, diesen Unterschied zu beachten und diese steuerschonende Behandlung bei direkten Spenden nicht zu übersehen.
- It should be noted that loan agreements signed by companies and non-financial organisations are not subject to stamp duty. In addition, credit agreements signed by financial institutions and micro and small enterprises may be exempt from stamp duty. The duration of this scheme has been extended until 31 December 2021 by Notice No. 6/2021 issued by the Ministry of Finance and the State Administration of Taxation. Businesses should be aware of this scheme and take advantage of it to save tax on loan agreements if they are one of the eligible businesses.
Background: aiming for a more constitutional tax administration
In 2015, the State Administration of Taxation issued the Guiding Opinions on Comprehensive Promoting the Governing of Taxes according to Law (Shui Zong Fa [2015] No. 32), which stipulated that China should accelerate the transformation of relevant tax regulations into laws to improve legal certainty and enhance the efficiency of tax administration. This is seen as an important part of China’s broader efforts to achieve a greater rule of law, meaning law-based administration of the country.
With the passage of the Stamp Duty Law, China has enacted legislation for 12 of the 18 existing taxes. Companies would be well advised to keep a close eye on future developments in China’s tax laws. More crucial changes are on the horizon.
This article first appeared in Asia Briefing, published by Dezan Shira Associates. The firm advises international investors in Asia and has offices in China, Hong Kong, Indonesia, Singapore, Russia, and Vietnam. Please contact them via info@dezanshira.com or the website www.dezshira.com.