China Looking Ahead is a series of articles published by the International Tax Review in association with KPMG China. In this edition, our tax specialists examine recent developments in Chinese tax law and administration and explore what the coming year may bring for multinational enterprises.
Key thematic chapters in this edition look at, amongst other topics:
Individual Income Tax (IIT): China’s long-awaited major IIT reform has finally been implemented. Changes to IIT categories and bands, and the introduction of an array of itemised deductions, while lessening the tax burdens of many taxpayers, will significantly increase employer administrative burdens. At the same time, new IIT integrity provisions and modifications to tax residence rules have major implications for high-net-worth individuals (HNWIs) and for global mobility tax planning.
Trade and Customs: In the course of 2018, both the US and China have introduced a series of tariff measures directed at imports from each other; this occurred as China otherwise reduced its general tariff levels. It remains to be seen whether the underlying issues, which have led to this situation, can be resolved, or whether this heralds a more long-term shift in the global economic environment. Against this backdrop, customs management has taken on an even more important significance than ever before, with enterprises confronting the new tariffs needing to consider alternative trading arrangements, supply chain restructuring, and use of new customs advance rulings.
US tax reform: The 2018 entry into effect of the US tax reform law has potentially transformative implications for the global tax landscape. New innovations, such as the minimum taxes, on outbound activity under the global intangible low-taxed income (GILTI) regime, and on inbound activity under the base erosion anti-abuse tax (BEAT), will need to be considered in tandem with the changing global trade environment in assessing the structuring of investment and business activity into and out of China.
Outbound investment: In 2018 the Chinese government continued to invest significant effort in policies to support outbound investment, particularly into ‘Belt and Road’ (BRI) jurisdictions. This included enhancements to foreign tax credits, facilitation of greater use of the mutual agreement procedure (MAP) and advance pricing agreements (APAs), and streamlining of administrative controls on outbound investment.
Tax transformation: 2018 saw the continued rationalization of China’s tax administration, with the merger of the thousands of local tax bureaus (LTBs) and state tax bureaus (STBs). China also took further significant steps in the year to transition the tax system to full digitalization and self-assessment, and reliance on risk-based, data-driven, tax enforcement. These trends raise the effectiveness of the tax authorities, while also opening opportunities for sophisticated taxpayers to achieve greater tax certainty, through investment in systems and deeper engagement with the authorities.
Digital Economy: The increasing size and sophistication of China’s digital economy (DE), and the rapid expansion of Chinese digital economy (DE) enterprises into foreign markets, are highlighting a range of complex tax issues. These include the manner in which new DE business models are outpacing the ability of existing tax rules and administration to deal with them, questions on the tax role of platforms, and cross border issues on forex, withholding tax, PE and VAT. The DE tax trends around ASPAC, and globally, including efforts to build a global consensus solution, are also of crucial importance.
For your reference, we include below links to the previous seven editions.
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