In recent years, cross-border services have grown rapidly, but due to the complex provisions of Chinese domestic and international tax systems, both parties to the agreement may lack professional guidance when signing the agreement and they have not fully considered the impact of taxes on the service price, which leads to unhappiness in the later payment. In order to avoid further dispute, foreign service providers shall understand the impact of tax in advance.

Value-Added Tax (VAT)

The VAT rate in China is 6%. VAT has not been stipulated in any bilateral tax treaty between China and other countries.In line with the ¨Chinese Tax Law¨,Chinese clients are obligated to withhold the VAT from the payment to the foreign service providers.

Stamp duty

Stamp duty is a very important tax in many countries or regions, but not all business activities in China will pay stamp duty. China's stamp duty rate is very low, with a maximum of 1 per 1000 and a minimum of 0.3 per 1000. See some examples below: 

The above examples correspond to various specific economic activities, which are clearly stipulated in ¨China Stamp Tax Law¨. For commercial advisory services, such as legal and financial consultancies, audit services, stamp duty is not levied.

Income Tax

Whether the foreign service providers need to pay income tax depends on whether them need to enter China. If the service can be provided without entering China, there is no need to pay income tax. 

If the foreign service providers have to enter the country to complete the service, the income tax will become quite complex due to the determination of PE. The complexity refers to that if a foreign service provider is regarded as a PE in China, the income tax of both the enterprise and employees involved in the projects shall be paid, even though their salaries might be paid by foreign entities.

To sum up, foreign service providers to obtain income, the VAT must be paid. The payment of stamp duty depends on the type of service provided. Income tax is more complex and depends on whether the service providers enter China.

- TEAM MERBERS -

Anita Wang

Partner in the Tax Department

Practicing Finance and Tax

Working language: Chinese and English

Email：wanglingru@zlwd.com

Zoraida Liang

Partner in Latin Department

Practicing International Investment and Trading

Working language: Chinese, Spanish and English

Email：Liangxinyue@zlwd.com