China Clarifies Rule On Foreign Tax Credits

According to China Corporate Income Tax Law ("CIT Law"), a China resident enterprise is subject to China Corporate Income Tax ("CIT") on its worldwide income. A nonresident enterprise is liable for CIT on its income derived from China. If a nonresident enterprise has an establishment or place of business in China, the enterprise is subject to CIT on its income from China and overseas that is effectively connected to the establishment or place of business in China. A resident enterprise may claim foreign tax credit for foreign income tax paid on its taxable income from sources outside China. A nonresident enterprise may claim foreign tax credit for foreign income tax paid on its taxable income from sources outside China that is effectively connected with the establishment or place of business of such nonresident enterprise within China.