CHINA

Source: IMF, International Financial Statistics, June 2021.

• The Chinese central bank is the People's Bank of China (PBC - www.pbc.gov.cn)
• Chinese banks are supervised by the National Financial Regulatory Administration (NFRA - www.nfra.gov.cn).

• Per item-based charges and/or subscription fees are applied on payments between resident and non-resident bank accounts.

• Credit transfers are used by companies to pay salaries and suppliers, and to make tax and treasury payments.
• High-value (above RMB 1M) and urgent RMB-denominated credit transfers are settled in real time via CNAPS-HVPS.
• Low-value (under RMB 1M) and non-urgent RMB-denominated credit transfers are settled on a same-day or next-day basis via CNAPS-BEPS.
• Foreign currency (AUD, CAD, CHF, EUR, GBP, HKD, JPY and USD) fund transfers can be settled during business hours via the CFCPS.
• Cross-border transfers can be made via SWIFT and settled through correspondent banks abroad.
• The number of credit transfers processed fell by 11% in 2019, to eight billion. Value fell 0.4% to RMB 2,706 trillion.

• Direct debits are available but not widely used in China.
• Direct debits are available in the form of pre-authorised collections or dated debits.
• Direct debits can be settled on a same-day (pre-authorised collections) or next-day (dated debits) basis via CNAPS-BEPS.

• The cheque is a common cashless payment instrument used primarily by small companies.
• There is a maximum permitted payment value of RMB 500,000 per cheque.
• Intercity cheques are truncated into electronic items and processed via the CIS. Final settlement is via CNAPS-BEPS.
• Intracity cheques are settled via the local clearing house system on a same-day basis.
• The value of cheques processed in 2019 fell 10% to RMB 134 trillion.

• Card payments, particularly debit cards, are increasingly popular, especially for retail transactions.
• In Q3 2020, there were 97.5 billion card transactions, with a value of RMB 235.7 trillion, a year-on-year increase of 11.6% and 6.9% respectively. There were over eight billion active bank cards.
• China UnionPay (CUP) is China’s national payment card operator. It has 80 member banks.
• Most payment cards are issued under the CUP brand.
• Visa and MasterCard-branded payment cards are also available.
• The central bank is promoting the use of chip-embedded payment cards with IC-based bank cards. Two billion IC cards had been issued in China.
• Contactless payment cards are issued.
• All card payments are processed and cleared via CNAPS-BEPS on a same-day or next-day basis.

• There were approximately one million ATMs in China at the end of 2020.
• There were approximately 33.5 million POS terminals in China at the end of 2020.
• All payments are settled via CNAPS-BEPS on a next-day basis.

• Mobile wallet payments are popular for small-value items. WeChat and Alipay mobile payment apps are most popular accounting for more than 94% of all mobile payments.
• In Q3 2020, 64.97 billion electronic payments were processed with a value of RMB 696.4 trillion; mobile payments reached 34.5billion, with a value of RMB 116.74 trillion, a year-on-year increase of 26.5% and 35.6% respectively.
• The NetsUnion Clearing Corporation platform is mandatory for transactions involving third-party online payment firms and banks.
• In Q3 2020, the NetsUnion platform processed 156.122 billion transactions, with a value of RMB 97.21 trillion, up 43.82% and 40.87% respectively year on year.

• BNP Paribas Global Trade Solutions’ (GTS) team in China is made up of 10 transaction banking sales specialists across 3 trade centres in Beijing, Shanghai and Guangzhou respectively. With its extensive product expertise, BNP Paribas’ GTS in China has expertise in supporting corporates with the full range of trade finance products.

• China has signed bilateral or multilateral free trade agreements with more than 20 countries and regions.
• China has signed a Closer Economic Partnership Agreement (CEPA) with Hong Kong and Macau.
• The China-ASEAN Free Trade Area (CAFTA) eliminates 90% of tariff and investment barriers between the two parties.
• China and 14 other Asia-Pacific countries signed the Regional Comprehensive Economic Partnership (RECP).

Sources: IMF, International Financial Statistics and World DataBank, June 2021.

• Licences are required when importing certain items for reasons of health and safety, environmental protection and/ or national security.

• Tariffs are set in one of six categories: most favoured nation, conventional, preferential, general, tariff quota and temporary.
• From January 1, 2021, China has reduced conventional duty rates with New Zealand, Peru, Costa Rica, Switzerland, Iceland, South Korea, Australia, Georgia, Pakistan and Asia-Pacific Trade Agreement countries.
• As of 1 July 2019, goods originating in Hong Kong and Macao have zero tariffs.

• None

• None

• Prohibited imports are published on a negative list.
• China prohibits the import of certain items in order to protect fauna and flora, for health and safety or moral reasons, and/or for national security.
• Narcotics, weapons, recorded or printed materials are also controlled and restricted.

• Licences are required when exporting certain agricultural products, certain metals, vehicles, ozone depleting goods, paraffin, certain fresh and frozen meats, molybdenum and its products, vitamin C and citric acid.

• Export tariffs of between 5% and 75% are placed on certain goods. Export rebates are part of China’s VAT system.

• None

• The China Export and Credit Insurance Corporation (Sinosure), China’s official export and credit insurer, provides state-supported export credit insurance.
• Export credit insurance and finance are also available from the state-owned Export-Import Bank of China (China Eximbank).

• Prohibited exports are published on a negative list.
• China prohibits the export of certain items for cultural and moral reasons, and/or for national security.
• Certain items are subject to a Chinese government monopoly.
• Certain items can only be exported by specially designated traders.

• Exchange controls are administered by SAFE under the direction of the PBOC. There are no controls on current account items.
• Trade-related settlement transactions are classified as current account transactions, and mainly relate to import payments and export proceeds.
• Companies are permitted to hold foreign exchange income in current accounts in line with their operational requirements and subject to quotas.
• Resident and non-resident companies are permitted to use RMB for trade and investment.

• Interest income from central government bonds is exempt from income tax. Interest income from local government bonds issued in 2012 and thereafter is also exempt from income tax.
• In order to encourage the continued growth of securities investment funds, corporate investors are temporarily exempt from enterprise income tax for any income distributed from securities investment funds under specific rules (Caishui [2008] No 1).

• The EITL has a thin capitalisation rule, which is further specified in specific rules (Caishui [2008] No 121): a debt-to-equity ratio of 2:1 for general enterprises, and of 5:1 for financial enterprises. A deduction is not allowed for interest expenses incurred on any related-party debt investments exceeding these debt-to-equity ratios, unless the underlying transactions are in compliance with the arm’s-length principle (demonstrated through contemporaneous documentation), or the interest expenses are payable to domestic related parties subject to higher effective tax rates. The implementation rules of the EITL clarify that ‘debt investments’ refers to arrangements where an enterprise has directly or indirectly acquired financing from related parties, and where the enterprise is required to repay the principal and make interest payments to the lending party (or any other form of compensation which is of an interest payment nature).

N/A

• There generally is no advance ruling procedure, by the tax authorities can issue rulings in special cases. Taxpayers normally consult their local in-charge tax officials when issues arise.    
• Advance pricing agreements may be concluded.

• Gains and losses from the transfer of assets generally are combined with other operating income and taxed at the applicable company tax rate.
• For resident companies with foreign investments, capital gains are taxed as part of a company’s taxable profits at the applicable corporation tax rate. Capital gains derived from the transfer of equity interest are calculated as the difference between the sale proceeds and the original cost of the investment. Specific guidance (Guoshuihan [2010] No. 79) further clarifies that undistributed profits and other reserves of shareholders are included in the computation of capital gains.
• Chinese-sourced gains derived by foreign companies from property transfer are generally subject to a 10% withholding income tax under the implementation rules of the EITL.

* Although the EITL provides for a 20% withholding tax, the rate is reduced to 10% under the implementation rules. As a measure to promote foreign investment, the government has issued rules to provide a deferral of withholding tax on dividends and profits distributed to foreign investors and reinvested into encouraged investment projects in China, with retroactive effect from 1 January 2017.

** A 10% withholding tax, which is lowered from a 20% statutory rate, applies to interest paid to a non-resident unless the rate is reduced under a tax treaty. A 6% VAT also is imposed. Bond interest derived by foreign institutional investors from Chinese bond markets may be exempt from both income tax and VAT for the period from November 7 2018 to November 6, 2021.

†A 10% withholding tax, which is lowered from a 20% statutory rate, applies to royalties paid to a non-resident unless the rate is reduced under a tax treaty. A 6% VAT generally is applicable, but may be waived when royalties are paid for the transfer of qualified technology.

†† Technical service fees paid to a non-resident are subject to the statutory enterprise income tax rate (i.e. 25%) on a net-profit basis to the extent the services are rendered in China, unless the tax is reduced under a tax treaty. A minimum 15% deemed profit rate is used where documents substantiating costs and expenses are unavailable. A 6% VAT generally will be levied regardless of where the services are rendered.

• China has a broad tax treaty network. Most of China’s tax treaties are based on the OECD model treaty, providing for relief from double taxation on all types of income.
• China has over 100 tax treaties and arrangements.

• China imposes mandatory debt-to-equity ratios for foreign invested enterprises, and the equity of a foreign invested enterprise should be paid up within a stipulated time period.
• The EITL has a thin capitalisation rule, which is further specified in specific rules (Caishui [2008] No 121): a debt-to-equity ratio of 2:1 for general enterprises, and of 5:1 for financial enterprises. A deduction is not allowed for interest expenses incurred on any related-party debt investments exceeding these debt-to-equity ratios, unless the underlying transactions are in compliance with the arm's-length principle (demonstrated through contemporaneous documentation), or the interest expenses are payable to domestic related parties subject to higher effective tax rates. The implementation rules of the EITL clarify that 'debt investments' refers to arrangements where an enterprise has directly or indirectly acquired financing from related parties, and where the enterprise is required to repay the principal and make interest payments to the lending party (or any other form of compensation which is of an interest payment nature).

• China has transfer pricing rules. China has adopted a broad definition of associated enterprises with a strong emphasis on control. An entity with significant control over the taxpayer’s senior management, purchases, sales, production and the intangibles and technologies required for the business is defined as a related party. Accepted methodologies are the comparable uncontrolled price, resale price, cost plus, transactional net margin, profit split and other methods in compliance with the arm’s-length principle. Contemporaneous documentation is required (with certain exemptions) and cost sharing agreements may be used for developing intangible property or for shared services arrangements. A resident taxpayer that is the ultimate parent of a multinational group with annual consolidated revenue exceeding a threshold amount or that is appointed as the filing entity of a multinational group is required to file a country-by-country report.
• Advance pricing agreements are available.

• Stamp duty at varying rates applies to contracts, agreements and certain legal documents.

• There are no specific tax rules in China that apply to cash pooling arrangements.

• The 6% VAT on financial services applies to lending, fee-based financial and banking services, insurance services, and transfers of financial assets. Financial leasing in the form of "sale-first-lease-back" is also treated as a lending service under the VAT reform. Financial assets cover foreign exchanges, equity securities, non-commodity futures and other financial products (e.g. funds, trusts, asset management programmes and other financial derivatives)

All tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlight 2021 (www.deloitte.com).