Significant Changes To Business Tax For Foreign Service Providers

Changes to Levying Principle on Taxable Services

Effective 1 January 2009, the levying principle of business tax ("BT") on services in the People's Republic of China ("PRC") has been changed from where the service is performed to where the service provider or the service recipient is located. This change may have a substantial impact on the BT liabilities of foreign service providers who provide services outside the PRC to PRC clients.

Similar to the repealed Tentative Regulations on Business Tax (1993 Version), the Tentative Regulations on Business Tax (2008 Revision) provide that any unit or individual that provides services, transfers intangible assets or sells immovable property in the PRC is liable for BT and must pay it in accordance with the regulations.