TAXATION AND FOREIGN EXCHANGE

Transcription

1 TAXATION The following is a summary of certain PRC and Hong Kong tax consequences to investors purchased under the [REDACTED] and held as capital assets. This summary does not purport to address all material tax consequences of the ownership of H Shares, and does not take into account the specific circumstances of any particular investor, some of which may be subject to special provisions. This summary is based on the tax laws of the PRC and Hong Kong in effect as of the Latest Practicable Date, all of which are subject to change (or changes in interpretation), possibly with retroactive effect. This section in this [REDACTED] does not address any aspect of Hong Kong or the PRC taxation other than income tax, capital tax, stamp duty, business tax and estate duty. Prospective investors are urged to consult their tax advisers regarding the PRC, Hong Kong and other tax consequences of owning and disposing of H Shares. PRC Taxation The following is a discussion of certain PRC tax provisions relating to the ownership and disposal of H Shares purchased in connection with the [REDACTED] and held by the investors as capital assets. This summary does not purport to address all material tax consequences of the ownership of H Shares and does not take into account the specific circumstances of any particular investors. This summary is based on the PRC tax laws in effect as of the Latest Practicable Date, as well as on the Arrangement between Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ( ) signed on August 21, 2006 and the Second Protocol to Arrangement between Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income ( ) signed on January 30, 2008 and the third Protocol to Arrangement between Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income ( ) signed on May 27, 2010 and the fourth Protocol to Arrangement between Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income ( ) signed on April 1, 2015 (collectively, the Arrangements ), all of which are subject to change (or changes in interpretation), possibly with retroactive effect. III-1

2 Dividends Individual investors According to the Individual Income Tax Law of the PRC ( ) (the Individual Income Tax Law ) promulgated on September 10, 1980, as amended on October 31, 1993, August 30, 1999, October 27, 2005, June 29, 2007, December 29, 2007, June 30, 2011, and the Provision for Implementation of the Individual Income Tax Law ( ) (the Provision for Implementation ) promulgated on January 28, 1994, as amended on December 19, 2005, February 18, 2008 and July 19, 2011, dividends paid by PRC companies to individuals are ordinarily subject to a PRC withholding tax levied at a flat rate of 20%. For a foreign individual who is not a resident of the PRC, the receipt of dividends from a company in the PRC is normally subject to a withholding tax of 20% unless specifically exempted by the financial department of the State Council or reduced by an applicable tax treaty. Pursuant to the Notice on Matters Concerning the Levy and Administration of Individual Income Tax After the Repeal of Guo Shui Fa [1993] No. 45 ( [1993]045 ) (Guo Shui Han [2011] No. 348) promulgated by the SAT on June 28, 2011, if a domestic non-foreign-invested enterprise issues its shares in Hong Kong, its non-prc resident individual shareholders may be entitled to preferential tax treatment in accordance with the applicable tax treaties between the PRC and the countries in which they are tax residents and the applicable tax arrangements between the Mainland China and Hong Kong (Macau). In general, the distribution of dividends by a domestic non-foreign-invested enterprise whose shares are issued and listed in Hong Kong is subject to withholding at a rate of 10% and there is no need to apply to the tax authorities in the PRC to qualify for this rate. If the tax rate specified in the relevant tax treaty or arrangement is lower than 10%, an individual shareholder who receives dividends may apply for a refund of the excess amount withheld, subject to the approval of the competent tax authority. If an individual shareholder is a resident of a country which has entered into a tax treaty with the PRC and the agreed tax rate is higher than 10% but lower than 20%, his dividend will be subject to income tax at the agreed tax rate. If an individual shareholder is a resident of a country which has not entered into a tax treaty with the PRC, his dividend will be subject to income tax at a tax rate of 20%. III-2

3 Enterprises According to the Enterprise Income Tax Law of the PRC ( ) (the EIT Law ) and the Provision for Implementation of Enterprise Income Tax Law of the PRC ( ) (the Implementation Regulations ), which both became effective on January 1, 2008, a non-resident enterprise is subject to a 10% enterprise income tax on any income sourced from the PRC provided that such non-resident enterprise does not have an establishment or place of business in the PRC, or where there is an establishment or place of business, there is no connection between the income received and such establishment or place of business. Such withholding tax may be reduced pursuant to an applicable double taxation treaty or arrangement. The aforesaid income tax payable by the non-resident enterprises shall be withheld at source, for which the payer thereof shall be the withholding agent. According to the Notice of the State Administration of Taxation Regarding Questions on Withholding Enterprise Income tax on the Dividends Paid by PRC Resident Enterprises to Non-resident Enterprise Shareholders of H Shares ( H ) (Guo Shui Han [2008] No. 897), which became effective on November 6, 2008, PRC enterprises must withhold enterprise income tax at a rate of 10% when they distribute dividends to non-resident enterprise shareholders of H shares. Pursuant to that notice, we intend to withhold tax at 10% from dividends payable to non-prc resident enterprise holders of H Shares. According to the Official Reply of the State Administration of Taxation on Imposition of Enterprise Income Tax on B-share Dividends of Non-resident Enterprises ( B ) (Guo Shui Han [2009] No. 394) issued by SAT on July 24, 2009, any Chinese resident enterprise that publicly offers or lists its shares (A-share, B-share and Overseas Share) within or outside the territory of China shall uniformly withhold and remit 10% of the dividends distributed to non-resident enterprise shareholders as enterprise income tax for any such distributions made in and after Where any non-resident enterprise shareholder is entitled to the tax agreement treatment, the relevant provisions of the tax agreement shall prevail. III-3

4 Tax treaties Investors who are not residents of the PRC and reside in countries that have entered into treaties for the avoidance of double taxation with the PRC or reside in Hong Kong Special Administrative Region or Macau Special Administrative Region may be entitled to a reduction of tax on dividends paid by PRC companies. The PRC has entered into arrangements for the avoidance of double taxation with Hong Kong Special Administrative Region and Macau Administrative Region, and has signed treaties for the avoidance of double taxation with a number of other countries, which include but are not limited to Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States. Non-PRC enterprises that are entitled to be taxed at a reduced rate under an applicable income tax treaty or arrangement will be required to apply to the PRC tax authorities for a refund of any amount withheld in excess of the applicable tax rate, and payment of such refund will be subject to the PRC tax authorities approval. According to the Arrangement between the Mainland China and Hong Kong for the Avoidance of Double Taxation on Income ( ) signed on August 21, 2006, the PRC government may impose tax on dividends payable by a PRC company to a Hong Kong resident (including specified natural person and legal entity), but such tax shall not exceed 10% of the gross amount of dividends payable, and in the case where a Hong Kong resident company holds 25% or more of equity interest in a PRC company, such tax shall not exceed 5% of the gross amount of dividends payable by such PRC company. Furthermore, pursuant to the Circular of the State Administration of Taxation on Relevant Issues relating to the Implementation of Dividend Clauses in Tax Treaty Agreements ( ), which was promulgated and effective from February 20, 2009, all of the following requirements must be satisfied for a non-resident enterprise shareholder to be entitled to the benefits of an applicable double taxation treaty or arrangement for dividends paid to it by a Chinese resident company: (a) such an entity must be a company as provided in the tax agreement; (b) such an entity must directly own a specified percentage of equity interest and voting shares of the Chinese resident company; and (c) the equity interests of the Chinese resident company directly owned by such an entity, at any time during the twelve months prior to the receipt of dividends, must reach a percentage specified in the tax agreement. In addition, according to The Administrative Measures for Non-resident Enterprises to Enjoy Treatments under Tax Treaties (Trial) ( ( ) ) ( Administrative Measures ) which came into force on October 1, 2009, where a non-resident enterprise (as defined under the PRC tax laws) that receives dividends from a PRC resident enterprise wishes to enjoy the favorable tax benefits under an applicable tax treaty or arrangement, it must submit an application to the competent tax authority. Without being approved, the non-resident enterprise may not enjoy the favorable tax treatments provided in the applicable tax treaty or arrangement. III-4

5 Taxes Related to Share Transfer Individual investors With respect to individual holders of H Shares, the Individual Income Tax Law and Provision for Implementation generally stipulate that gains derived from the disposition of property shall be subject to income tax at a rate of 20%. In addition, the Provisions stipulate that measures for the levying of individual income tax on gains derived from the sale of equity securities shall be formulated separately by the MOF and shall be implemented following approval of the State Council. Under the Circular Declaring that individual Income Tax Continues to Be Exempted over Individual Income from Transfer of Shares ( ) (Cai Shui Zi [1998] No. 61) issued by the MOF and the SAT on March 30, 1998, from January 1, 1997, income of individuals from the transfer of shares of listed enterprises was exempted from individual income tax. After the latest amendment to the Individual Income Tax Law on June 30, 2011 and the Provision for Implementation amended on July 19, 2011 and implemented on September 1, 2011, the SAT has not explicitly stated whether it will continue to exempt individual income tax on income derived by individuals from the transfer of listed shares. However, on December 31, 2009, the MOF, the SAT and the SCRC jointly issued the Circular on Relevant Issues Concerning the Collection of Individually Income Tax over the Income Received by Individuals from Transfer of Listed Shares Subject to Sales Limitation ( ) (Cai Shui [2009] No. 167), providing that individuals income from transferring listed shares on certain domestic exchanges generally will be exempted from the individual income tax, except for the shares of certain specified companies which are subject to sales limitations (as defined in the supplementary notice of such Circular issued on November 10, 2010). As of the Latest Practicable Date, the aforesaid provision has not expressly provided that the above exemption applies to non-prc resident individuals on the sale of shares of PRC resident enterprises listed on overseas stock exchanges. To our knowledge, in practice, the PRC tax authorities have not sought to collect income tax on non-prc resident individuals on gains from the sale of listed shares of PRC resident enterprises on overseas stock exchanges. However, there is no assurance that the PRC tax authorities will not change these practices which could result in levying income tax on non-prc resident individuals on gains from the sale of our H Share. Such tax may be reduced or eliminated pursuant to an applicable tax treaty. Enterprises According to the EIT Law and the Implementation Regulations, a non-resident enterprises shall be subject to 10% enterprise tax for income sourced from the PRC provided that the non-resident enterprises do not have an establishment or place of business in the PRC, or where there is an establishment or place of business, there is no connection between the gains received and such establishment or place of business. Such income tax may be reduced or eliminated pursuant to an applicable double taxation treaty. III-5

6 PRC Stamp Duty PRC stamp duty imposed on the transfer of shares of PRC publicly traded companies should not apply to the acquisition and disposal by non-prc investors of H Shares outside of the PRC by virtue of the Provisional Regulations of the PRC Concerning Stamp Duty ( ) and the Rules for Implementation of Provisional Regulations of the PRC Concerning Stamp Duty ( ), which became effective on October 1, 1988 and which provide that PRC stamp duty is imposed only on documents, executed or received within the PRC that are legally binding in the PRC and are protected under PRC law. Estate Duty No estate duty is imposed by the PRC government. Certain Taxes Applicable to the Company Enterprise income tax In accordance with the Enterprise Income Tax Law of the People s Republic of China ( EIT Law ) ( ) promulgated on March 16, 2007 and the Regulations for the Implementation of the Enterprise Income Tax Law ( ) promulgated on December 6, 2007, domestic enterprises and foreign-invested enterprises are subject to enterprise income tax at a uniform rate of 25%. In accordance with pertinent taxation laws and administrative regulations, the EIT Law and its implementation regulations provides for a five-year transition period in respect of enterprises incorporated prior to March 16, 2007 and entitled to concessions in enterprise income tax, so that the applicable tax rates for such enterprises would gradually be standardized at 25%. Enterprises entitled to fixed tax holiday or fixed tax reduction/exemption may continue to enjoy such concessions in the same manner as stipulated by the State Council until the expiration of the tax holiday or the concession period. For enterprises who have not benefited from such concession due to the absence of profit, the concession period started from the effective date of the EIT Law, January 1, Value added tax ( VAT ) Pursuant to the Provisional Regulations on Value-added Tax of the PRC ( ) (the VAT Regulations ), which was amended by the State Council on November 5, 2008 and became effective on January 1, 2009, and its implementation rules ( ), which was amended by the MOF on October 28, 2011, entities or individuals engaging in sale of goods, provision of processing services, repairs and replacement services or importation of goods within the territory of the PRC must pay value-added tax. Unless provided otherwise, a tax rate of 17% shall be levied on most of general taxpayers selling or importing various goods. The rate applicable to the export of goods by taxpayers is nil, unless otherwise stipulated. III-6

7 Pursuant to the Pilot Scheme for the Conversion of Business Tax to VAT ( ) (Cai Shui [2011] No. 110) promulgated by the MOF and the SAT on November 16, 2011, since January 1, 2012 the State started to introduce taxation reform in certain service industries (namely transportation and certain modern service industries) which are subject to business tax in a gradual manner, whereby the collection of VAT in lieu of business tax items was implemented on a trial basis in certain regions including Shanghai and Beijing. The MOF and the SAT further notified that the aforesaid pilot scheme for the conversion of business tax to VAT will be implemented nationwide beginning August 1, As of the Latest Practicable Date, the value-added tax has been implemented thoroughly. Stamp duty According to the Provisional Regulations of the People s Republic of China on Stamp Duty ( ) enacted on August 6, 1988 and summarily revised on January 8, 2011 and the Detailed Rules for Implementation of the Provisional Regulations of the People s Republic of China on Stamp Tax ( ) enacted on September 29, 1988, all entities and individuals executing or receiving taxable documents within the PRC must pay stamp duty. The list of taxable documents includes purchase and sale contracts, processing contracts, construction project contracts, property lease contracts, cargo freight contracts, warehousing and storage contracts, loan contracts, property insurance contracts, technical contracts, other documents in the nature of contracts, title transfer deeds, business account books, certificates of rights, licenses and other documents confirmed to be taxable by the MOF. FOREIGN EXCHANGE CONTROLS OF THE PRC Foreign exchange are strictly controlled in the PRC, but trend to deregulate in recent years. There are hundreds of regulations and rules about foreign exchange control in China, and the general one is Regulations of the People s Republic of China on Foreign Exchange Control ( ) which was promulgated by the State Council on January 29, 1996, as amended on January 14, 1997 and April 5, These Regulations are formulated for the purpose of strengthening foreign exchange control, facilitating equilibrium in the balance of international payments, and promoting the healthy development of the national economy. The foreign exchange control department of the State Council (State Administration of Foreign Exchange, SAFE) is the competent authority performs the functions of foreign exchange control and undertakes responsibilities. These Regulations is applicable to all the receipts and payments of foreign exchange or foreign exchange operation activities of domestic institutions or individuals and the receipts and payments of foreign exchange or foreign exchange operation activities in China of overseas institutions or individuals. A financial institution engaged in foreign exchange business shall report to the relevant foreign exchange control organs in accordance with the law on its client s foreign exchange receipts and payments and the changes to the client s foreign exchange account. III-7

8 Pursuant to Regulations on the Administration of Settlement, Sale and Payment of Foreign Exchange ( ), issued by the PBOC on June 20, 1996 and effective from July 1, 1996, any domestic institution, individual, or foreign institution situated in China and a foreigner coming to China who conducts the settlement and purchase of foreign exchange, opening of the foreign exchange account and outbound payments should comply with these Regulations. Foreign exchange control in the PRC covered almost all the economic activities involving foreign exchange, it includes foreign exchange control for current account transactions, foreign exchange control for capital account transactions, control of foreign exchange operations of financial institutions, and administration of Renminbi exchange rate and the foreign exchange market. For its complexity, any person wishing to have detailed information on the PRC foreign exchange control is recommended to seek independent and professional advice. On December 26, 2014, the SAFE promulgated the Notice of the State Administration of Foreign Exchange on Issues concerning the Foreign Exchange Administration of Overseas Listing ( ). Pursuant to the Notice, domestic companies should, within 15 working days after the completion of the initial offering of shares for its overseas listing, go through the registration of overseas listing with the Foreign Exchange Bureau at its place of registration. And if a domestic shareholder intends to increase or reduce its holdings of overseas shares after the company is listed overseas, it should go through the registration of overseas shareholding with the Local Foreign Exchange Bureau within 20 working days prior to the intended increase or reduce its holdings of overseas shares. TAXATION IN HONG KONG Tax on Dividends Under the current practice of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in respect of dividends paid by our Company. Taxation on Capital Gains and Profits No tax is imposed in Hong Kong in respect of capital gains from the sale of property such as the H Shares. However, trading gains from the sale of H Shares by persons carrying on a trade, profession or business in Hong Kong where such gains are derived from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong profits tax, which is currently imposed at the rate of 16.5% on corporations and at a maximum rate on unincorporated business of 15.0%. Certain categories of taxpayers are likely to be regarded as deriving trading gains rather than capital gains (for example, financial institutions, insurance companies and securities dealers) unless these taxpayers can prove that the investment securities are held for long-term investment. Trading gains from sales of H Shares effected on the Hong Kong Stock Exchange will be considered to be derived from or arising in III-8

9 Hong Kong. Liability for Hong Kong profits tax would thus arise in respect of trading gains from sales of H Shares effected on the Hong Kong Stock Exchange realized by persons carrying on a business of trading or dealing in securities in Hong Kong. Stamp Duty Hong Kong stamp duty, currently charged at the ad valorem rate of 0.1% on the greater of the consideration for, or the market value of, the H Shares transferred on each of the seller and purchaser, will be payable by the purchaser on every purchase and by the seller on every sale of H Shares (in other words, a total of 0.2% is currently payable on a typical sale and purchase transaction involving H Shares). In addition, a fixed duty of HK$4.70 is currently payable on each instrument of transfer of H Shares (if required). Where one of the parties to a transfer is resident outside Hong Kong and any stamp duty payable on the instrument of transfer is not paid, the relevant instrument of transfer (if any) shall be chargeable with such duty, together with the duty otherwise chargeable thereon, and the transferee shall be liable to pay such duty. Estate Duty The Revenue (Abolition of Estate Duty) Ordinance 2005 came into effect on February 11, 2006 in Hong Kong, pursuant to which no Hong Kong estate duty is payable and no estate duty clearance papers are needed for an application of a grant of representation in respect of holders of H Shares whose deaths occur on or after February 11, III-9