SAT Clarifies QFII Income Tax Matters

The State Administration of Taxation (SAT) recently issued a circular stating that qualified foreign institutional investors (QFII) are required to pay 10% enterprise income tax on dividends, bonuses and interest income derived within the territory of China in accordance with Chinese tax laws.

The circular points out that for dividends and bonuses, taxes due shall be withheld by the payer of such income, and for interests, they shall be withheld by the payer at the time of payment or when they become due.

QFIIs that are eligible for tax treaty treatment for dividends, bonuses and interests received may submit applications to the local tax authorities. If these are checked and found to be in order, the tax authorities shall extend them such treatment in accordance with the treaty terms. If tax rebates are involved, they must be processed in a timely manner.

The circular urges the local tax authorities to keep themselves updated on the investments of QFIIs in China so as to provide prompt tax services, set up tax files, and ensure that the taxes withheld are turned in to the treasury in good time and in full.