Tax: Luxembourg Brazil, the first Latin American country to emerge from recession Switzerland and the USA sign revised double taxation agreement Private investors in China THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLAND July // August // September 2009
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Tax: Luxembourg
Brazil, the first Latin American country to emerge from recession
Switzerland and the USA sign revised double taxation agreement
Private investors in China
THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLANDJuly // August // September 2009
Can You Hear Me?
Can You Hear Me?
EDITORIAL
De Vittori of Switzerland is an international consulting firm, established in Lugano, Switzerland, with branches in Bulgaria, China, Cyprus, Italy, Luxembourg, Morocco, Spain, the United Kingdom and the USA.
Its multilingual team includes accountants, tax consultants and lawyers and offers tailor-made solutions and advisory services to a global clientele in connection with the set-up and management of companies in 288 jurisdictions.
De Vittori of Switzerland prides itself on experience acquired in the field of international tax planning. With the publication of our new quarterly magazine, we take a step closer to our clients. The periodical ably combines graphic elegance with content relevant to today’s global marketplaces. It will contain surveys, dealing with topics such as Taxation and Economy, as well as information on current events, such as News from Switzerland and News from the world.
We hope our international clientele will be pleased by this initiative and will find the ma-gazine informative. We take this opportunity to remind all our valued customers and associates that we welcome any contributions. Our Associated and projects survey is ready to host all projects and articles we consider worthy of disclosure.
We look forward to receiving your comments and we send our best regards
Alessandro PumiliaEditorial Director
8.
14.
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De Vittori of Switzerland
We work side by side with you to solve every strategic operating need.
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6.
Taxation: Luxembourg
Economy: Brazil, the first Latin American country to emerge from recession
News from SwitzerlandSwitzerland removed from OECD grey list
News from the worldBusiness Community Urges UK Corporate Tax Review
De Vittori of SwitzerlandSwitzerland is one of the world’s most affluent countries
Jurisdictions: People’s Republic of China
inside this issue
De Vittori of Switzerland
A New IP Tax Regime
Rules and regulations surroun-
ding intellectual property (IP) are
continually evolving. In today’s
competitive world it has become
important to safeguard trademarks,
copyrights, database rights, patents
and confidential information rights.
IP protection from possible forgeries
and/or imitations is at the base of a
solid business strategy. Luxembou-
rg’s new favourable IP tax regime
marks yet again the Government’s
efforts to stimulate IP research and
development in and surrounding Lu-
xembourg. The hallmark of the IP tax
regime is an 80 percent exemption
on royalties and capital gains deri-
ving from many types of IP. Compa-
nies benefiting from the new regime
would be subject to an effective
tax rate as low as 5.72 percent on
qualifying “net” IP income (i.e.,
gross IP income reduced by directly
related expenses, depreciations and
write-offs).
The IP tax regime broadens the
scope of qualifying IP rights to inclu-
de patents, trademarks, designs/
models, internet domain names
and software copyrights relating to
standard software. Service marks
(i.e., trademarks identifying a service
rather than a product) that currently
represent a majority of registered
marks, are also covered. Copyrights
for literary or artistic work, plans,
secret formulae and processes as
well as know-how remain, however,
outside the scope of the new IP tax
regime.
Conditions for the application of the new IP tax regimeIn order to benefit from the new Lu-
xembourg IP tax regime, qualifying IP
rights must fulfil the following criteria:
- acquisition or development
after December 31, 2007;
- no acquisition from directly related
companies;
- Capitalisation of expenses,
amortisations and write-offs
economically related to the IP.
tax exempt company into a taxable
company (e.g., the conversion of
a holding 1929 into a fully taxable
SOPARFI) does not qualify as a new
acquisition for the purposes of the IP
tax regime. Consequently, quali-
fying IP rights may in such cases only
benefit from the partial tax exem-
ption if the original acquisition date
was later than December 31, 2007.
Should a foreign company migrate
to Luxembourg, the original acquisi-
tion date (rather than the migration
date) is to be considered. Where
IP rights are allocated to a Luxem-
bourg permanent establishment
of a foreign company, the original
acquisition date at the level of the
parent company (rather than the
allocation date) is to be considered.
Where a foreign permanent establi-
shment of a Luxembourg company
acquires or develops a qualifying IP
right and subsequently allocates it
to the Luxembourg head office, the
original acquisition or development
date should be considered.
The partial exemption does not
apply to IP acquisitions involving
directly related companies; that is,
where ownership exceeds 10 per-
cent. Incidentally, the law specifies
three cases of directly related com-
panies where the acquisition of IP
rights cannot benefit from the IP tax
regime. Importantly, participations
held via entities that are deemed
to be transparent for Luxembourg
tax purposes (e.g., partnerships) are
considered “direct participations”.
Where IP rights are disposed of by
the parent company to its Luxem-
bourg IP company, the 10 percent
threshold is verified at the time of
the acquisition. However, where IP
rights are contributed, the 10 per-
TAXATION
The burden of proof for meeting
these cumulative conditions is on the
taxpayer. Though the Luxembourg
IP regime is in principle not optional,
the regime should only apply where
taxpayers claim its application. The
application of the IP tax regime in
specific cases may be confirmed
before the Luxembourg tax autho-
rities in the form of an advance tax
clearance.
In order to benefit from the Luxem-bourg IP tax regime, qualifying IP rights must be acquired or develo-ped after December 31, 2007. Where IP rights are acquired, the acquisition date should be determined in the purchase agreement and therefore not give rise to particular practical difficulties. Should IP be acquired in the frame of an exchange of assets, the exchange date is decisive.
The Circular clarifies the situation
where IP rights are developed. For
patents and internet domain names
the date of development is the
date of application for registration.
In case of trademarks, designs and
models, the date of registration is
relevant. Registration is not, however,
applicable to copyrights relating to
standard software. Here, conside-
ration must be given to the date at
which all necessary development
work is finalised and the product
may be marketed. For transac-
tions eligible for rollover relief (e.g.,
mergers, demergers) the original
acquisition date is to be considered
provided that such transactions are
performed in a tax neutral manner
(i.e., where book values are conti-
nued). Likewise, the conversion of a
Luxembourg
7.
cent threshold is verified before the
contribution (and not following the
contribution). It follows that where IP
rights are contributed by a com-
pany – irrespective of its country of
residence – to a Luxembourg com-
pany, and the direct shareholding
does not exceed 10 percent (before
the contribution), the application for
the IP tax regime should in principle
not be challenged. Moreover, as this
condition only applies to “direct”
affiliates, the acquisition of qualifying
IP rights from, for instance, an indi-
rect shareholder or another indirect
affiliate, should not jeopardise the
application of the IP tax regime.
Finally, qualifying IP rights may be
acquired from individual sharehol-
ders irrespective of the sharehol-
ding percentage. Importantly, the
directly related affiliates principle
is only restricted to the transfer of
IP rights. Thus, qualifying IP income
may benefit from the partial IP tax
exemption where it is received from
“directly” related affiliates.Where a
Luxembourg company self-develops
qualifying IP rights, expenses, amorti-
sations, and write-offs, economically
related to the IP, it must be capita-
lised in the first fiscal year for which
the benefits of the IP tax regime are
claimed. The book value is to be
amortised over the useful lifetime of
the IP right.
Companies that have either their
seat or place of effective mana-
gement in Luxembourg are subject
to Luxembourg corporate income
tax on their worldwide income at a
rate of 21.84 percent. However, the
Luxembourg IP tax regime provides
that net IP income deriving from
qualifying IP rights as well as capital
gains realised upon their disposal,
are tax exempt at 80 percent. Net
IP income is determined by deduc-
ting from the IP income, all directly
related costs (including financing
costs and amortisation). For the pur-
poses of maximising the partial tax
exemption, it is advisable to finance
IP rights benefiting from the IP tax re-
gime with equity. For taxpayers using
self-developed qualifying patents,
the notional deduction is deter-
mined as the arm’s length royalty
that would have been received by
the taxpayer, had he licensed the
patent to a third party. It is neces-
sary that the taxpayer capitalise
all development costs incurred,
in the first fiscal year for which the
benefits of the IP tax regime are
claimed. Though this capitalisation
should increase the company’s
taxable income, it should nonethe-
less ensure tax neutrality. Indeed,
formerly tax deductible costs may
reduce taxable income or trigger
tax losses carried forward that may
offset income in connection with the
capitalisation. Losses incurred in a
fiscal year and deriving from an IP
right should in principle be fully tax
deductible. However, where capital
gains are realised upon the disposal
of an IP right, losses incurred prior to
the disposal are 80 percent recap-
tured. Crucially, should no capital
gains be realised, the recapture
mechanism should not trigger any
deemed income.
Source
BNA International, London. EC2R
8AY, UK, www.bnai.com
“In today’s competitive world it has become important to safeguard trademarks, copyrights, database rights, patents and confidential information rights.”
9.
De Vittori of Switzerland
GoodEconomyBrazil, the first Latin American country to emerge from recession
Brazil is the first Latin American
country to emerge from recession—
and one of the earliest among the
G-20 countries to have done so—
following a 1.9% quarter-on-quarter
expansion in economic activity
in the period from April to June.
Whereas the global environment re-
mains difficult and the export sector
continues to struggle, the strength of
domestic demand has propelled the
economy to the start of a recovery.
The second quarter rebound came
after two consecutive quarters
of shrinkage (1% in the first three
months of 2009 and 3.4% in the last
three months of 2008), which had
put Brazil into a technical recession.
This relatively short recession was
the first for Brazil since 2003. The
quick economic rebound is attribu-
table to the strength of domestic
demand, particularly household
expenditure, which grew by 2.1% in
the second quarter. Exports of goods
and services grew by 14.1%, while
imports rose by 1.5%. Government
consumption grew barely, at 0.1%,
while gross fixed investment was flat
quarter-on-quarter.
On a year-on-year basis, the eco-
nomy still contracted, by 1.2%, in the
second quarter of 2008, though this
was at a slower pace than the 1.8%
shrinkage recorded in the first quar-
ter. Private consumption increased
by 3.2% year-on-year (up from just
1.3% in the first quarter). However,
government spending rose by just
2.2%, the smallest increase for more
than three years. Investment con-
tinued to fall back, with gross fixed
capital formation down 17% from
a year earlier (the sharpest such
contraction since the data series be-
gan in 1996). Exports of goods and
services fell by 11.4%, easing from
the 15.2% decline of the first quarter.
However, imports fell more steeply,
by 16.5% compared with a drop of
16% in the first quarter.
Still finance minister Guido Mantega,
highlights the fact that Brazil was
one of the last major economies to
fall into recession in 2008, and one of
the quickest to bounce back. This is
testament, he says, to Brazil’s strong
macroeconomic fundamentals
and effective fiscal and monetary
policies. He expects the recovery
to speed up in the third and fourth
quarters; and, whereas GDP shrank
by 1.5% year on year in the first half
of 2009, he expects it to grow by
3.5% in the second. This would bring
full-year growth to 1%.
The second-quarter result was so-
mewhat stronger than the Economist
Intelligence Unit had been expec-
ting. As a result, we now see GDP
growth finishing the year closer to
zero, rather than our most recent
projection of a 1% contraction.
Brazil’s growth rate is expected to
strengthen in 2010, assuming a mild
global recovery, reinforced by the
boost to household expenditure
from monetary easing and lower
inflation. This will also help investment
to stage a (partial) recovery in 2010,
supported also by a turn in the
inventory cycle. Public spending is
expected to pick up with the appro-
ach of the October 2010 Presidential
election. We presently forecast that
real GDP will expand by 3.3% in 2010,
although this is below Mr. Mantega’s
current expectation of 4% or better.
The mildness of Brazil’s recession—
which is especially notable conside-
ring the high base of comparison—
also reflects the high degree of
diversification of the economy and
trading partners, as well as the solidi-
ty of the financial system. The latter
cushioned Brazil from the fallout of
the global financial crisis that hit
last year. And even though exports
are down significantly from a year
earlier, they account for just 13% of
GDP—a much smaller share than in
China, Japan and Germany (where
exports reach around 40% of GDP).
Consequently, the impact of the
global demand downturn has been
more muted for Brazil.
Indeed, various banks and credit-risk
agencies have pointed to Brazil’s
resilience to external shocks as the
reason to maintain its relatively
positive credit ratings. The Standard
& Poor and Fitch Ratings both assign
an investment-grade rating to Brazil’s
sovereign debt, and Moody’s is con-
sidering upgrading its rating to the
same. Further, while the government
has implemented counter-cyclical
fiscal policies, the cost of these has
not been very large. According to
Mr. Mantega, they have cost the
equivalent of 1-1.5% of GDP, as op-
posed to 13% of GDP for China and
6.7% of GDP for the US. The stimulus
measures have included seven con-
secutive months of interest-rate cuts
that put the benchmark rate at a
record low of 8.75% (an easing cycle
that seems to have ended for now);
tax breaks for purchases of cars,
consumer durables and household
appliances; and enhanced credit
supplied by state development
banks.
Given the relatively low cost of the stimulus package, Brazil’s eco-nomy and fiscal situation will be in better shape than those of many other G-20 countries next year. Mr. Mantega believes that the current fiscal stimulus will have run its course by the end of this year, by which time the economy will have its own growth momentum and will not need renewed fiscal support.
Brazil’s quick recovery will also be
good news for other neighbouring
Latin American countries, whose
economies are closely integrated
with that of South America’s largest
nation. Argentina, in particular,
could see expanded demand
for its exports. Brazil’s automotive
sector, for instance, is tied to that of
Argentina, and has been experien-
cing healthy performance in recent
months.
SourceEconomist
Brazil
11.
Bern, 24.09.2009. With today’s signing of the new double taxation agree-ment (DTA) with Qatar by President Hans-Rudolf Merz and the Prime Mi-nister of Qatar, Switzerland has been swift to implement the OECD criteria. It has signed twelve agreements containing a clause on extended administrative assistance in tax mat-ters. Further agreements will follow. Consequently, Switzerland will be removed from the `grey list’ of the OECD Secretariat.
Switzerland and the USA sign revised double taxation agreement Bern, 23.09.2009. Switzerland and
the USA today signed a protocol in
Washington amending the double
taxation agreement (DTA) in the
area of taxes on income. In addition
to other changes, the Protocol of
Amendment also contains provisions
on the exchange of information in
accordance with the OECD stan-
dard. Those provisions were negotia-
ted in line with parameters defined
by the Federal Council. Any request
for administrative assistance must
clearly identify the taxable person
concerned and, in the case of ban-
king information, the bank concer-
ned. As has been the case with past
DTAs, so-called `fishing expeditions’
are not permissible. These provisions
are not applicable retroactively: In
terms of the exchange of banking
information, the effective date is
today, the day of the signing.
Extension of revised DTA with Den-mark to Faroe IslandsBern, 22.09.2009. Switzerland and
Denmark today signed an exchan-
ge of notes in Copenhagen in which
the revised double taxation agree-
ment (DTA) with Denmark has been
extended to the Faroe Islands. The
revised agreement also contains
a provision on the exchange of
information in accordance with the
OECD standard which was negotia-
ted in line with parameters decided
by the Federal Council in the
spring of 2009.
Switzerland and Finland sign revi-sed double taxation agreementBern, 22.09.2009. Switzerland and
Finland today signed a Protocol
amending the double taxation
agreement (DTA) in the area
of taxes on income and assets.
The Protocol of Amendment
also contains a provision on
the exchange of information
in accordance with the OECD
standard which was negotiated
in line with parameters decided
by the Federal Council.
Switzerland and Mexico sign revi-sed double taxation agreementBern, September, 21.09.2009. On
Friday, Switzerland and Mexico
signed a Protocol to amend the
double taxation agreement (DTA)
in the area of taxes on income
in Mexico City. The Protocol of
Amendment also contains a
provision on the exchange of
information in accordance with
the OECD standard which was
negotiated in line with para-
meters decided by the Federal
Council.
Switzerland and Austria sign revised DTASwitzerland and Austria have
recently signed an agreement
revising the existing double taxa-
tion agreement (DTA) between
the two countries, it has been
announced. The revised agree-
ment provides for administrative
assistance in tax matters under
Article 26 of the OECD Model
Convention, and was negotiated
in line with parameters laid out
by the Federal Council. Following
the Federal Council decision on
March 13, 2009, Austria is the fifth
country with which Switzerland
has signed a DTA containing the
extended administrative assistan-
ce clause in accordance with Article
26 of the OECD Model Convention,
after Denmark, Luxembourg, France
and Norway. Up to now, Switzerland
has negotiated DTAs with an exten-
ded administrative assistance clause
with fourteen countries.
Switzerland and Denmark sign revised double taxation agreementBern, 21.08.2009.
Today Switzerland and Denmark
signed the Protocol to amend the
double taxation agreement (DTA) in
the area of income tax and wealth
tax in Copenhagen.
The negotiations with Denmark
were also used to carry out other
amendments regarding dividends.
In the current DTA, only the country
of residence has the right to tax
dividends. The source state does
not have the right to levy taxes on
dividends (so-called zero rate). In
the renegotiated DTA the zero rate
is only applicable to dividends on a
holding of more than 10 per cent of
the capital.
Source
Federal Department of Finance FDF
Ne
ws fro
m Sw
itzerla
ndSwitzerland removed from OECD grey list
13.
De Vittori of Switzerland
Looking ahead, going beyond
September 2009. Despite calls for a cut, most finance directors fear that the rate of corporation tax will either stay the same or increase after the next general election, potentially damaging UK competitiveness, according to new research. A survey of 500 finance directors by business and financial advisors Grant Thor-nton shows 82% expect that the next government, whatever its colour, will ignore calls for a cut in the main rate of corporation tax, currently 28%. However, just under two-thirds (62%) have backed Grant Thornton’s tax manifesto calling for the rate to be cut to 25% or under in order to boost UK competitiveness. Nearly one-third (30%) of Finance Directors believe that the corporation tax rate will increase to between 29% and 30%, and a further 20% believe it will increase to over 30%; 34% believe that it will remain at 28% after the next general election to deal with the mounting fiscal deficit.
Is RAK Offshore The New BVI?August 2009. The government of Ras
Al Khaimah has launched an offsho-
re facility, the second in the UAE,
that is expected to lure investors
looking for a new tax haven. The
initiative, called International Com-
panies Registry, will allow foreign
investors to register offshore compa-
nies in the Ras Al Khaimah Free Trade
Zone (RAK FTZ) without the need to
establish a physical presence, the
zone’s chairman Shaikh Faisal Bin
Saqr Al Qasimi said yesterday. Ras Al
Khaimah officials hope foreign com-
panies will find their offshore system
more appealing than the Jebel Ali
Offshore centre, which was establi-
shed by Dubai in 2003 to position
itself as a tax haven like the Cayman
Islands, Bahamas and Liechtenstein.
Guernsey Receives Recognition On Tax Information ExchangeAugust 2009. HM Treasury in the Uni-
ted Kingdom has issued a statement
welcoming Guernsey’s progress in
signing agreements on the exchan-
ge of information, which is streng-
thening its reputation as a jurisdiction
committed to good governance in
tax matters. Guernsey has recen-
tly concluded its fourteenth Tax
Information Exchange Agreement,
signed with New Zealand on July 21,
and also has agreements with the
following jurisdictions: Denmark, Fa-
roe Isles, Finland, France, Germany,
Greenland, Iceland, Ireland, Ne-
therlands, Norway, Sweden, United
Kingdom and United States.
The SeychellesJuly 2009. The Seychelles have
territorial taxation; thus only locally-
sourced income is taxed. There is
recent, well-formed legislation for
International Business Companies,
Offshore Banks, Insurance Com-
panies, Mutual Funds, Trusts, and
extensive programmes of investment
incentives, as well as the Internatio-
nal Trade Zone, all of these being
basically free of taxes. In 2003, the
government legislated for additional
types of company: Special Licence
Companies, Protected Cell Com-
panies and Limited Partnerships. It
is easy to form corporations, and
privacy is reasonably assured. There
are tax treaties with a number of
countries, including China. Banking
and shipping are the Seychelles two
main offshore industries. The Seychel-
les started to create an IOFC only
quite recently, but by 2008, more
than 50,000 companies had already
been registered. The Trade Zone is
probably the most successful aspect
of the offshore initiative, and that
has more to do with trade than tax.
Malta and Ownership of Property in PortugalJuly 2009. Since 2003 a Portuguese
list of offshore centers has existed,
which imposes certain penalties
against properties held by entities
defined as being offshore. As an
onshore jurisdiction, Malta is not on
this list. Therefore, tax savings can
be generated through the use of a
Malta company to hold property in
Portugal.
Ireland: Tax Exemption for Start-Up CompaniesJuly 2009. In an attempt to encou-
rage the establishment of new
companies a three year remission
from taxation from profits and
capital gains for companies with a
tax liability of less than € 40,000 per
annum was announced in Budget
2009. The aim is to provide a stimulus
for entrepreneurs in a challenging
commercial environment. Compa-
nies that qualify will be fully exempt
from corporation tax on trading
profits and chargeable gains on the
disposal of assets used for the new
trade where the total amount of
corporation tax does not exceed €
40,000. At the current rate of corpo-
ration tax i.e. 12.5% this equates to €
320,000 of profits per year.
Source
Low tax netNe
ws
from
the
wo
rldBusiness Community Urges UK Corporate Tax Review
Switzerland is one of the world’s most affluent countries. Hundreds of years of
history, backed by social and political stability and an honourable reputation
for efficiency and discretion, have played a decisive part in contributing to
Switzerland’s position as a highly valued financial centre.
From our offices in Lugano we can provide:- Set-up and management of Swiss companies
- Set-up and management of companies worldwide
- Nominee Agreements
- International contracts
- Introduction to the Swiss financial market
- Business Center services
De Vittori of Switzerland utilizes various corporate instruments to administrate assets and activities on behalf of its worldwide clients. These include:- Holding companies
- Trading companies
- Offshore companies
- Royalty companies
- Trusts
- Foundations
- Branches
Company purpose
Founders
Liability
Accounting obligation
Management
Nationality
Image
Taxation
Vat
AG/SA
Holding, trading, manufacturing or
other business under the name of a
company
At least 3 shareholders
Limited by shares
Yes
Board of Directors and auditors
Free
Very good
Contact our offices
7,6% - 8% from January 2011
Branch
Legally dependent, economically
independent business operation of
the main company
Main company
Main company
Yes
Managing Director with domicile in
Switzerland
Free
Main company
Contact our offices
7,6% - 8% from January 2011
R
De Vittori of Switzerland
We were born great…and keep on growing
17.
structure when compared to an
equity joint venture. Namely, the re-
lationship between the foreign and
the local partner may be merely
contractual and the incorporation of
a company with limited liability is not
required.
- wholly foreign owned enterprise (WFOE): it is established exclusively
with the capital of the foreign inve-
stor and it usually operates under the
limited liability company corpora-
te form. Some sectors are still not
accessible to WFOEs, while in some
sectors, a previous authorization by
the Ministry of Commerce is needed.
Taxation of individuals Individuals are subject to perso-
nal income tax on the worldwide
income, while non residents are
liable to tax only on locally sourced
income. Special rules for determi-
ning whether a person is liable to tax
in China are based on the length of
his/her permanence in China as well
as on the source of the employment
income. The tax rate is between 5%
and 45%.
Taxation of companiesResident companies are subject
to corporate income tax on their
worldwide income, at the rate of
25%. Non-resident companies are
liable to tax only with respect to
locally sourced income. The taxable
base is, in general, derived from the
accounting profits. Losses may be
carried forward for 5 years. Transfer
pricing, CFC and thin capitalization
rules apply.
IncentivesStarting from 1st January 2008 the
majority of the tax incentives forese-
en with respect to Foreign Invested
Enterprises has been repealed.
A transitional regime applies with
respect to dividends paid out of
profits earned by Foreign Invested
Enterprises before 1st January 2008.
Similarly, the new uniform tax rate
of 25% will be introduced gradually
with respect to said enterprises. The
tax incentives currently available
focus on a reduced 15% tax rate
Jurisdic
tions
People’s Republic of China
China is a People’s Republic admi-nistratively divided in 23 provinces, four autonomous regions and five metropolitan areas. Its capital is Bei-jing. China is a Member of the most important international organization and is a permanent Member of the UN Security Council. China is curren-tly the third economy in the world in terms of absolute (nominal) GDP.
Corporate law In China private investors may adopt
one of the following forms when
setting up a business entity:
- llimited liability company: in a
limited liability company capital is
divided into common shares. Sha-
reholders (who should not be more
than 50) have limited liability. The
minimum registered capital is 30,000
CNY, unless stricter regulations apply.
Unipersonal limited liability compa-
nies are also admissible, even thou-
gh specific rules in this case apply.
- joint stock company: in a joint
stock company capital is divided
into shares and shareholders have
limited liability. The company should
have at least two founders (and not
more than 200). Restrictions on the
residence of the founders apply;
at least half of them should be
Chinese residents. A minimum of 5
million CNY is required, unless stricter
regulations apply. Shares can be
offered to the public. Government
requirements are more structured
when compared to a limited liability
company. Foreign investors are al-
lowed to operate through a Foreign
Invested Enterprise (FIE) which may
take one of the following business
forms:
- equity joint venture (EJV): an equity
joint venture is a joint investment car-
ried out by foreign investors in con-
junction with a local partner. Such
a joint venture is bound to operate
by means of the incorporation of a
juridical person with limited liability.
- co-operative joint venture: such
a joint venture has a more flexible
for «high technology enterprises»
fulfilling certain requisites. Within said
incentives, special regimes apply
to companies located in Special
Economic Zones and in Shanghai -
Pudong New Area.
Special extra-deductions are forese-
en for resident companies investing
in reaserch and development, focu-
sing on new technologies and com-
pliant with some specific fulfilments.
The extra-deductions consist in a 50%
add up to the deductible R&D costs
as well as special amortization rules
with respect to internally developed
assets (assuming in this respect 150%
of the cost base for an amortization
period of at least 10 years).
Specific tax incentives, such as tax
holidays and reduced tax rates are
granted under some conditions with
respect to investments carried out in
the developing Western Regions.
Special tax incentives are granted to
companies involved in infrastructure
building, subject to some requisites.
Under a certain threshold (5 million
CNY) income deriving from tech-
nology transfer is not subject to tax.
Higher amounts are half exempted
from taxation.
Additionally, the exemption of
customs duty on importation of
self-used equipment from overseas
is also foreseen under some condi-
tions.
Withholding taxesA 10% outbound withholding tax
is levied on dividends paid to non
resident companies, except a lower
treaty rate applies. No withholding
tax is levied on dividends paid out
by qualified FIEs accruing from inco-
me produced, before 1st January
2008, when special tax regimes for
FIEs were still available.
Dividends paid lo foreign compa-
nies that have an establishment
in China and that are connected
to the activity of such permanent
establishment are not subject to
withholding tax. Dividends between
qualified resident enterprises are not
subject to withholding tax.
A 10% outbound withholding tax is
levied on interests, except a lower
treaty rate applies.
A 10% outbound withholding tax is
levied on royalties, except a lower
treaty rate applies.
Vat Entities and individuals engaged
in the sale of goods, processing,
repair service and the importation
of goods are subject to VAT. VAT is
charged at a rate of 17% (a special
rate of 13% apply to certain basic
goods and a 3% rate applies to small
taxpayers). A 7% rate applies only for
input VAT credit on the purchase of
freight fee.
Double Taxation Treaties The Chinese treaty network includes
treaties currently in force with 89
Countries.
Source
Fiscalità internazionale, IPSOA, luglio-
agosto 2009, p. 333, 334.
19.
Published byDe Vittori of Switzerland - Lugano
DirectorAlessandro Pumilia
The information in this brochure is subject to change without notice.Application of the information to specific circumstances requires the advice of professionals who must rely upon their own sources of information before providing advice. The information is intended only as a general guide and is not to be relied upon as the sole basis for any deci-sion without verification from reliable professional sources familiar with the particular circumstances and the applicable laws in force at that time.
DesignGiovanna Capoferri
THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLANDJuly // August // September 2009