On July 9th, 2013, the State Administration of Taxation (SAT) and the State Administration of Foreign Exchange (SAFE) issued a joint announcement in connection to the procedure to remit funds overseas in connection to payments for both commercial and non – commercial activities. Such announcement (“Announcement No. 40) entered in force on September 1st, 2013, and contains several provisions oriented to simplify and speed up the procedures for remittance overseas.

In fact, before Announcement 40, any subject that intended to effect a remittance overseas for any amount above USD 30,000 (and with the exception of such transactions explicitly exempted from the below procedure) should have obtained a specific document that certified the payment of taxes in connection to the transaction (i.e. the Tax Clearance Certificate, or “TCC”), before being able to obtain the authorization from its bank to effect the actual remittance. The procedure for obtaining the TCC could have a duration of several months, thus adversely affecting on the punctual fulfillment of payments obligations.

The Announcement No. 40 not only raises the threshold for which no filing procedures are necessary from USD 30,000 to USD 50,000, but also sets up a simplified procedure for a various range of transactions having value above USD 50,000:

according to the new procedure, in fact, any subject that intends to effect a remittance above USD 50,000 due to one or more of the transactions listed by the Announcement No. 40 (including but not limited to transaction related to income deriving from services rendered by non – resident subjects, licenses for non – material goods, financial lease, real estate, transfer of equity, dividends, interests), shall file to the competent Tax Bureau a specific form (called “Record Filing Form”) in three copies, together with a copy of the contract based on which the remittance shall be effected and any other relevant document. Then the Tax Bureau, contrary to previous practice according to which all information and details related to the transaction would have been thoroughly exanimated, it will only verify the completeness of the documents submitted and shall promptly return to the applicant one copy of the Record Filing Form with the approval stamp and a serial number. Once above procedure is completed, the applicant can submit the chopped Record Filing Form to its bank and proceed with the remittance overseas.

In addition to the above, in case of several payments related to a single contract, while the applicant shall obtain a chopped Record Filing Form from the Tax Bureau for each payment, all the documents related to the transaction can be submitted to the Tax Bureau only in occasion of the first payment.

It has to be pointed out that the issuance of the Announcement 40 does not mean a relaxation of policy from Chinese Tax Authorities in connection to international transactions (especially for these transactions concerning immaterial goods and services) and to the payment of relevant taxes.

In fact, according to the provisions of Announcement No. 40, within 15 days from the filing of the Record Filing Form the Tax Authority will carry out a detailed analysis of the documents submitted and to the information provided (in order to asses the truthfulness of what it has been declared), it will verify the actual payment of the taxes due in connection to the transaction, and it will reserve its right to request to the applicant additional documentation.

It remains also unchanged the procedure of registration of contracts to the Tax Authority and the procedure for tax payments: therefore, the applicant (as taxpayer or as withholding agent) maintains the same obligation it had before the issuance of the Announcement No. 40, and will be subject to the same penalties and fines in case of violation of tax provisions.

To summarize, while with the Announcement No. 40 the remittance procedure has been definitively simplified, and the taxed in connection to a transaction can be settled even after having transferred funds abroad, it is of paramount importance that applicants (in their status of taxpayers/withholding agents) shall prepare all documents needed for tax settlement in due time, so to timely fulfill their obligations towards Tax Authorities and in order to be able to avoid possible penalties or fines.

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