State Taxation Administration Announcement No.11 of 2018 

For the purpose of unifying and standardizing the implementation of the treaties signed by the government of the People’s Republic of China and the governments of other jurisdictions for the avoidance of double taxation (hereinafter referred to as “tax treaties”), issues with respect to the implementation of provisions of permanent establishment, shipping and air transport, entertainers and sportspersons, as well as the application of tax treaties to partnerships, are hereby announced as below.

1. A China-foreign cooperative educational institution which does not have legal person status, and the place where educational and teaching activities are carried out for China-foreign cooperative educational programs, shall constitute a permanent establishment in China by a resident of the other contracting party to a tax treaty.

Regarding the provisions on whether a service constitutes a permanent establishment, the wording “for a period or periods aggregating more than six months within any 12-month period” shall be construed as “for a period or periods aggregating more than 183 days within any 12-month period”.

2. Articles regarding shipping and air transport which are consistent with what is set out in Article 8 (Shipping and Air Transport) of Agreement between the Government of the People’s Republic of China and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and the Protocols thereof (hereinafter referred to as the China-Singapore Double Taxation Agreement) shall be applied in light of the following principles:

a) income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic in the other Contracting State shall be exempted from tax in the other Contracting State.

Income derived from international traffic refers to the income obtained by the enterprise from passenger or cargo transportation by ships or aircraft, and the rental income obtained by leasing ships on a voyage charter or time charter basis or leasing aircraft on a wet-lease basis (fully equipped, crewed and supplied).

b) the tax exemption stated in the preceding Article 1 a) shall also apply to the income derived from participation in a pool, a joint business or an international operating agency. As to the tax treatment of several companies jointly engaging in international traffic, each participant or partner shall pay tax on its share of profits respectively in the country of which it is a resident.

c) “interest derived by an enterprise of a Contracting State from its deposits incidental to and connected with its operations of ships or aircraft in international traffic”, as mentioned in Article 8.3 in the China-Singapore Double Taxation Agreement, refers to the interest generated from the income of the international traffic obtained from and deposited in the other Contracting State by a shipping or air transport enterprise of either Contracting State engaging in international traffic. Such interest shall not be subject to the provisions of Article 11 (Interest) of the China-Singapore Double Taxation Agreement and shall be deemed as income incidental to international traffic and be exempted from tax in the source state.

d) income obtained by enterprises from leasing, such as leasing ships on a bareboat charter basis or aircraft on a dry lease basis, and use, maintenance or rental of containers used for cargo or commodities (including trailers and related equipment for the transport of containers) shall not be regarded as international traffic income; but in accordance with Article 8.4 of the China-Singapore Double Taxation Agreement, income derived from the above-said leasing activities which is incidental to the international traffic, shall be deemed as international traffic.

The term “incidental to” means that the activities are related to and serving international traffic and are of supportive and ancillary nature. The income derived by enterprises engaging in the above-said leasing activities incidental to the international traffic shall be entitled to the benefits of provisions regarding shipping and air transport, provided that the following three conditions are fulfilled:

(i) the enterprise’s industrial and commercial registration and related supporting materials can prove that its primary business is international traffic;

(ii) the enterprise’s ancillary business is activities that make a minor contribution to its primary business and are so closely related to the latter that they should not be regarded as a separate business or source of income; and

(iii) income derived from the ancillary activities represents, in principle, less than ten percent of the enterprise’s total revenue from its operation of international traffic within a fiscal year.

e) the following income closely related to the operation of international traffic shall be counted as part of the international traffic income:

(i) income from selling passenger tickets on behalf of other international traffic enterprises;

(ii) income from transporting passengers from downtown to the airport;

(iii) income from transporting goods from warehouses to airports, docks, or from airports or docks to the premises of the buyer, as well as directly sending goods to the buyer; and

(iv) income derived from a hotel set up by the enterprise to provide transit accommodation solely for its passengers.

f) income obtained by an enterprise, not exclusively engaged in international traffic, from operating of its own ships or aircraft shall be regarded as international traffic income.

3. In the absence of specific provisions of shipping and air transport in a tax treaty as those of Article 8.4 of the China-Singapore Double Taxation Agreement, income derived from the above-said leasing activities by a resident of the other Contracting State of such tax treaty shall be treated by making reference to the provision of Article 2 d) of this Announcement.

4. Articles regarding entertainers and sportspersons which are consistent with what is set out in Article 17 (Artistes and Sportsmen) of the China-Singapore Double Taxation Agreement shall be applied in light of the following principles:

a) entertainers’ activities shall include activities of different artistic forms, such as stage art, film and television, music, etc., carried out by entertainers; other individuals’ activities carried out in the name of entertainers (such as movie promotion activities carried out by entertainers, advertising shooting activities, enterprises’ annual meetings and ribbon-cutting ceremonies participated by entertainers or sportspersons), and recreational activities in respect of politics, society, religions or charity causes.

Entertainers’ activities shall not include conference speeches, and activities carried out in the name of accompanying administrative or logistics personnel (such as photographers, producers, directors, choreographers, technicians, and deliverymen for touring performance troupes, etc.).

Giving speeches with a performance nature in commercial activities is not considered a conference speech.

b) sportspersons’ activities shall include participating in traditional sports such as racing, high jumping and swimming, etc.; sports activities such as golf, horse racing, football, cricket, tennis, and car racing; and recreational competitions such as billiards, chess, bridge competition, and e-sports.

c) the income derived from personal activities carried out in the capacity of entertainers or sportspersons shall include the income derived from performance activities (such as appearance fees) and other income directly or indirectly relating to the performance activities (such as advertising fees).

The income derived from the sale of audio-visual products of performance activities and distributed to entertainers or sportspersons, as well as the copyright-related income in connection with entertainers or sportspersons, shall be handled in accordance with provisions of Article 12 (Royalties) of the China-Singapore Double Taxation Agreement.

d) in accordance with provisions set out in Article 17.1 of the China-Singapore Double Taxation Agreement, when an entertainer or a sportsperson directly or indirectly obtains income, the Contracting State in which the performance takes place may tax the income obtained by the entertainer or sportsperson pursuant to its domestic law, without being subject to the restrictions stipulated in Article 14 (Independent Personal Services) and Article 15 (Dependent Personal Services) of the China-Singapore Double Taxation Agreement.

e) in case all or part of the income from the performance activities collected by other persons (including individuals, companies and other groups), if the domestic law of the Contracting State where the performance activities occur stipulates that such income collected by other persons shall be deemed as obtained by the entertainer or sportsperson, the Contracting State where the performance activities occur may, in accordance with its domestic law, tax the entertainer or sportsperson on the income from the performance activities in accordance with Article 17.1 of the China-Singapore Double Taxation Agreement, without being subject to the restrictions stipulated in Article 14 (Independent Personal Services) and Article 15 (Dependent Personal Services) of the China-Singapore Double Taxation Agreement. However, if the Contracting State where the performance activities occur cannot deem the income received by other person as the income obtained by the entertainer or sportspersons in accordance with its domestic law, such Contracting State may, in accordance with its domestic law, tax the other person on the income from the performance activities in accordance with Article 17.2 of the China-Singapore Double Taxation Agreement, without being subject to the restrictions stipulated in Article 7 (Business Profits), Article 14 (Independent Personal Services) and Article 15 (Dependent Personal Services).

5. The application of tax treaties to partnerships and other similar entities (hereinafter referred to as the partnerships) shall be governed by the following principles:

a) if a partnership established within China in accordance with Chinese laws has a partner who is a resident of the other Contracting State (Region) to the tax treaty, the part of the income that the partner is obliged to pay taxes in China and is also considered by the other Contracting State (Region) to be the income of its resident may be entitled to treaty benefits in China.

b) a partnership established in accordance with laws of other countries (regions), the place of effective management of which is not in China, which has institutions or establishments in China, or which does not establish institutions or establishments in China but derives income from China, is a non-resident enterprise taxpayer of Chinese enterprise income tax.

Unless otherwise stipulated in tax treaties, the income of the partnership which is obliged to pay tax in China may be entitled to treaty benefits only when the partnership is a resident of the other Contracting State (Region). The certificate of tax residency issued by the tax authority of the other Contracting State (Region) and submitted by the partnership in accordance with Article 7 of Announcement of the State Taxation Administration on Issuing the Administrative Measures for Non-resident Taxpayers Claiming Tax Treaty Benefits (State Taxation Administration Announcement No.60 of 2015) shall prove that the partnership, under the laws of the other Contracting State (Region), is liable to tax therein by reason of its domicile, residence, place of incorporation, place of management or any other criterion of similar nature.

The term “otherwise stipulated in tax treaties” refers to the situation in which treaty provisions stipulate that if under the law of the other Contracting State (Region), the income derived by the partnership is treated as income of the partners, the partners, being residents of the other Contracting State (Region), may be entitled to treaty benefits with respect to the part of income which derive from the partnership.

6. Relevant issues concerning the implementation of double taxation arrangements signed by the Chinese mainland with the Hong Kong Special Administrative Region and the Macao Special Administrative Region shall be governed by this Announcement.

7. This Announcement shall enter into force from April 1, 2018. Article 8 and Article 17 of Interpretations on the Provisions of the Agreement between the Government of the People’s Republic of China and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Tax Evasion With Respect to Taxes on Income and the Protocols thereof (Guo Shui Fa [2010] No.75) shall be repealed simultaneously.

State Taxation Administration

February 9, 2018

All information in this document is authentic in Chinese. English is provided for reference only. In case of any discrepancy, the Chinese version shall prevail.