New Stamp Duty Law of PRC Effective from July 1 2022

“Stamp Duty Law of the People's Republic of China” has been effective since July 1 2022. In order to accommodate to the official implementation?of the Law, China recently issued a series of?regulations (herein referred as “New stamp duty laws” combined with Stamp Duty Law of PRC) including the?abolished, expired and continued?list of stamp duty preferential policies, more detailed explanation to Stamp Duty Law, etc. We summarized the main highlights as below:

New highlights in New Stamp Duty Law

1 Stamp Duty Tax Payer

According to the New stamp duty laws, stamp duty taxpayers include: 1 the enterprises and individuals who make the taxable documents and process security transactions in China; 2 the enterprises and individuals who make the taxable documents outside China but use them in China.

?Additionally, New stamp duty laws further clarify that where multiple parties are involved in the taxable documents, the taxpayers shall be enterprises and individuals who have direct rights and obligations to the taxable documents. Accordingly, the taxpayers of loan contract in form of entrusted loans are trustees and borrowers instead of trustors. Taxpayers of confirmation letter for auction deal is owner of property and buyer.

?When enterprises check the contracts involved in multiple parties, they need judge their right and obligation in the contract to determine their tax obligation.?

2 Taxable documents made outside of China but used in China

New stamp duty laws clearly state what is the document made outside of China but used in China：

1)?The transferred real estate is in the territory of China;

2)?The transferred share is the share of a Chinese-resident enterprise;

3)?The seller or buyer of transferred movables or exclusive rights to use trademarks, copyrights, patent rights or rights to use proprietary technologies?is in the territory of China;?excluding oversea sellers transferring these kind of rights which are used completely outside of China to domestic organizations or individuals.

4)?The recipient or provider of taxable service is in the territory of China?excluding oversea organizations or individuals providing service incurred completely outside of China to domestic organizations or individuals.??

Oversea enterprises and individuals should judge the locations where the service is performed or the right is used to determine whether they are subject to China stamp duty.

3 The division of taxable base between multiple parties in taxable documents

New stamp duty laws specify that taxable base shall be shared by taxpayers evenly where there are multiple taxpayers involved in one taxable document and their individual tax base is not specified clearly.

Sharing evenly is a new concept proposed by New stamp duty laws.

4 Tax base

New stamp duty laws stipulate that the base of stamp duty does not include VAT amount. If taxable documents do not state VAT amount, all amounts agreed in taxable documents will be subject to stamp duty.

New stamp duty laws clearly define that the tax base of stamp duty is according to the amount stated in taxable documents. If there is any difference between stated amount and settled amount, tax base is still based on stated amount unless the stated amount is revised accordingly based on settled amount. Please note only when taxable document is revised based on settled amount then tax base is changed accordingly.?

Where taxable documents do not state the agreed amount, the tax base for stamp duty is based on actually settled amount.

Generally, tax base is determined based on the following sequence：

State amount in taxable documents?> Settled amount?> Market value?> Government pricing

?5 Refund and Overdue

New stamp duty laws list two situations of refund of excessive stamp duty or paying overdue stamp duty, one is that as mentioned above if state amount is changed based on settled amount, the overpaid tax may be refunded or underpayment needs to be paid . Two is that if taxable amount is reduced or increased due to calculation error.

In the mean time the stamp duty cannot be refunded in the following two situations：

1)?the overpaid stamp duty for unperformed taxable contracts, property transferring documents;

2)?The?overpaid stamps duty paid in the form of revenue stamp purchased and attached by taxpayers.

Normally there are two ways to pay stamp duty in China. One is taxpayers file and pay stamp duty through bank/cash. The other is taxpayers purchase revenue stamp and attached to the taxable documents. New stamp duty laws regulate clearly that the overpaid stamp duty in the form of purchasing and attaching revenue stamp won’t be refunded.

6?Clarifications of situations where documents should be deemed as taxable documents

In some situation, though company does no sign a official contract with customers and only have some documents agreed between each other for example orders, requisition bill etc, such documents are still taxable documents if they state the transaction relationship and right and obligation clearly.

Before, China tax authorities at different localities have different practices for sales/purchase transactions without official contracts. Some local tax authorities did not ask stamp duty if taxpayers did not sign official sales contracts, while some local tax authorities asked based on the sales amount incurred in certain period.?

New stamp duty laws clarify that although sometimes sales contract is not signed, tax obligation will be still generated where there are orders, requisite bills etc in place. Actually this rule should cover almost all sales/purchase transactions in current business environment after all it is very rare to reach a deal only by oral agreement.?

7?How to pay stamp duty for oversea entities

Where a taxpayer is an overseas entity or individual and has an agent in China, the agent in China is the withholding agent; if there is no agent in China, the taxpayer shall file?stamp duty?themselves. The place of filing tax can be the location where the asset is rendered, recipient/provider is located, etc.?

8?The contract between e-retailers and individual is free from stamp duty

With the further boom in e-commerce in China, most people especially young people prefer more online purchase than site visit. Recently even Douyin as a short video-sharing?company has begun to run their own online store. New stamp duty laws also adapt to the development trend of business recently.?

9?Payment deadline

Stamp duty is levied on a quarterly or yearly basis or based on each transaction. If it is levied on a quarterly or yearly basis, the taxpayer shall declare and pay stamp duty within 15 days after the end of each quarter or year. If it is levied on a transaction-by-transaction basis, the taxpayer shall declare and pay stamp duty within 15 days after the date when the obligation to pay tax arises.?Recently, Beijing, Shanghai, Guangdong etc. also releases the local rules for payment deadlines.

Our obversation

New stamp duty laws have clear stipulations on tax obligation of parties involved in contracts. Companies need to establish a proper internal process and internal control system to have a proper review on contracts and document to decide: 1 whether are contracts or documents taxable documents? 2 if so, whether does the company have direct rights and obligations to taxable contracts or documents? 3 if so, how to determine tax obligations? When to generate tax obligations?

Additionally, taxpayers need to decide the eligibility of tax preferential policy based on “decide by self, enjoy by filing, record by self for checking”. Taxpayer is responsible for the authenticity, completeness and legality of eligibility documents which requires accountants to have a full and comprehensive knowledge of tax laws including local regulations.

In the context of the article, China or the PRC refers to the People’s Republic of China but excludes Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Region. The information contained in this article is of a general nature only. It is not meant to be comprehensive and does not constitute the rendering of legal, tax, or other professional advice or service by ALA. ALA has no obligation to update the information as law and practices change. Before taking any action, we suggest you obtain advice specific to your circumstances from your professional advisers.

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