(Source: https://pltfrm.com.cn)
Capital gains derived from the sale of shares in Chinese companies by foreign entities are subject to specific tax treatments in China. Here are the key points to consider:
- Corporate Income Tax (CIT): Capital gains from the sale of shares are generally subject to CIT. The standard CIT rate is typically around 25%. This tax applies to the gain realized from the sale, which is the difference between the selling price and the original purchase price, adjusted for any allowable expenses.
- Withholding Tax: For foreign entities that do not have a permanent establishment in China, capital gains from the sale of shares in a Chinese company may be subject to withholding tax at source. The rate is generally 10%, but this can vary depending on any applicable Double Taxation Agreements (DTAs) between China and the foreign entity’s home country.
- Exemptions Under Certain Conditions: There might be exemptions available under specific conditions. For instance, gains from the sale of shares in a Chinese company where the underlying assets are mainly real estate in China may be exempted from CIT under certain circumstances.
- Tax Treatments Under DTAs: DTAs can significantly impact how capital gains are taxed. Some DTAs may provide for reduced rates of taxation or specific methods for avoiding double taxation. It’s important to review the relevant DTA to understand its implications.
- Reporting Obligations: Foreign entities are required to report the transaction to the Chinese tax authorities and comply with all procedural requirements for the payment of the tax.
- Indirect Transfer Regulations: China has specific rules to address indirect transfers of Chinese assets (like shares in a Chinese company) through the transfer of shares in a foreign holding company. These rules are aimed at preventing tax avoidance and may impose tax liabilities on transactions that occur outside of China but effectively transfer Chinese assets.
- Gain Calculation and RMB Exchange Rate: The calculation of the gain and the applicable taxes may involve converting foreign currency amounts into RMB, using the exchange rate prevailing at relevant times. This could have implications for the tax amount due in foreign currency terms.
Given the complexity of these regulations and the potential for significant tax liabilities, foreign entities contemplating the sale of shares in Chinese companies should seek advice from tax professionals or legal advisors familiar with Chinese tax law. They can provide guidance tailored to the specifics of the transaction and ensure compliance with all relevant tax obligations.
PLTFRM is an international brand consulting agency that works with companies such as Red, Tiktok, Tmall, Baidu, and other well-known Chinese internet e-commerce platforms. We have been working with Chile Cherries for many years, reaching Chinese consumers in depth through different platforms and realizing that Chile Cherries exports in China account for 97% of the total exports in Asia. Contact us and we will help you find the best China e-commerce platform for you. Search pltfrm for a free consultation!
