China’s State Administration of Taxation (SAT) issued a circular reinforcing the tax administration of share transfers by non-resident enterprises. The circular covers taxation of non-resident enterprises which transfer non-listed shares of PRC resident enterprises or specific overseas holding vehicles with underlying PRC resident enterprises.

For a non-resident enterprise transferring the shares of a Mainland PRC resident enterprise, the circular requires the transferor to perform tax filings if there is no withholding agent or the withholding agent fails to fulfill the withholding obligation. For a non-resident enterprise transferring an offshore holding company with underlying Mainland PRC resident enterprises in certain circumstances, the circular requires the transferor to provide specific documents to the tax authorities for tax assessment. In the latter case, the authorities may apply the general anti avoidance rule to evaluate the deal and impose PRC taxes on the share transfer upon a successful challenge of the business substance of the holding structures.

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