Page 43 - Doing Business in China

TAXATION

Comparability analysis

(1) Factors considered in performing the comparability analysis;
2) Information on the functions performed, risks assumed and assets employed by comparable enterprises;

3) Industry description;
4) The search method, source, selection criteria and rationale for the comparable information;

5) Information of selected internal or external comparable uncontrolled transactions and the financials of
comparable enterprises; and

6) Adjustments made to the comparable data and rationale for these adjustments�

OVERSEAS REMITTANCE
a) Dividends
A 10% withholding tax on dividends paid to a non-resident company has been in effect since 2008�

Previously, dividends paid by a Chinese company with at least 25% of foreign participation were exempt from this
tax obligation� It should be noted, however, that dividends paid out of pre-2008 earnings continue to be exempt
from withholding tax� The 10% withholding tax may be reduced under an applicable tax treaty�

b) Interest
Interest is generally subject to a 10% withholding tax unless the rate is reduced under a tax treaty� Interest from
certain loans made to the Chinese government or resident enterprises is exempt�

c) Royalties
The withholding tax rate on royalties and fees arising from the licensing of trademarks, copyrights and know-how
and related technical service fees is generally 10%� Royalties are generally subject to a 6% VAT, except for payments
made in connection with the use of technology, where an exemption may be granted�

d) Wage tax/social security contributions
The employer must withhold individual income tax on behalf of the employee and remit the relevant amount to the
tax authorities�

The employer must contribute approximately 20% of basic payroll to the state-administered retirement scheme�
The employer must also contribute to a medical insurance fund, maternity insurance, unemployment insurance
and work-related injury insurance� The total employer contribution may be up to about 40% of the employee’s
base monthly salary, although the rates can vary across the country� The employee is required to contribute a
certain percentage of his/her monthly salary to the above-mentioned funds, subject to a threshold set by the
local authorities�

Foreign individuals legally working in China (including both foreign residents hired by the Chinese entities and
those seconded from abroad to work in China) are required to participate in the same social security scheme
as described above, unless an exemption is provided under an applicable bilateral social security totalisation
agreement� However, enforcement may vary across different cities�

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