Jul 2010, Issue 12
Implementation guideline on foreign tax credit of enterprises - the new starting point of China's foreign tax credit mechanism
We reported in our previous News Flash [2010] Issue 1 Circular Caishui [2009] No.125, titled "Notice Regarding Relevant Issues on Tax Credits for Foreign Income Derived by Enterprises" ("Circular 125") which sets forth the framework of China's Foreign Tax Credit ("FTC") Mechanism in accordance with the new Corporate Income Tax ("CIT") Law. At that time, we also expected that the State Administration of Taxation ("SAT") would issue more detailed implementation guideline for enterprises to follow in claiming FTC in their CIT return.
On 2 July 2010, the SAT finally issued Notice [2010] No.1, releasing the "Implementation Guideline on Foreign Tax Credit of Enterprises" ("FTC Guideline"). The FTC Guideline provides detailed interpretation for each article of Circular 125, elaborates the calculation methods of FTC through various numerical examples, and formulates the implementation procedures in claiming FTC. We believe that the interpretation and examples could help the enterprises to understand the implementation procedures, to correctly calculate and claim FTC, and to efficiently manage the overall tax burden of its foreign sourced income. With the supplement of the FTC Guideline, the relevant provisions of the CIT Law and its Detailed Implementation Rules (collectively referred as "the New CIT Law" hereinafter) and Circular 125 have jointly established a comprehensive FTC Mechanism in China.
In this issue of News Flash, we would like to highlight the key features of the FTC Guideline and share our observations and insights on this topic.
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