A Quick Commentary on the Stamp Duty and Compliance in China

The “Stamp Tax Law of the People’s Republic of China” (hereinafter referred to as the “Stamp Tax Law” or the “new Law”) has been implemented for over an entire year now! From July 1st, 2022, the “Stamp Tax Law” came into effect, with the promulgation of this law, China now has laws established for 12 out of its 18 existing taxes. Stamp Tax, as a term that frequently appears in our business activities and daily life, on the first anniversary, let us review the past and present of Stamp Tax and its significance.

1. What is Stamp Tax?

Stamp Tax was first born in the Netherlands in the seventeenth century. “It is a tax levied on taxable vouchers written, received, and used in economic activities and exchanges. It is named because taxpayers mainly complete their tax obligations by pasting tax stamps on taxable certificates.”

2. Continuous Improvement of Stamp Tax Management in China

• In 1988, the “Provisional Regulations on Stamp Tax of the People’s Republic of China” was promulgated and implemented.

• 2011, a revision of the “Interim Regulations of the People’s Republic of China on Stamp Tax”

• The Stamp Tax Law was approved in 2021 and came in effect in July 2022, replaced the interim Stamp Tax regulations. The new law generally maintains the framework of the previous Stamp Tax system, while simplified the tax items and rates.

3. Milestone: “Small Tax” Hits Big

Stamp Tax is a “small tax” in terms of scale in China’s tax system. However, as it is involved in all aspects of daily business transactions of enterprises and individuals, it has a wide range of influence, which reduces discretion and ensures tax collection and management implement the principle of statutory taxation. As the 12th tax category that has been legislated in China, it optimizes the tax business environment and creates more favorable investment and transaction conditions, making another milestone for China’s tax legislation process.

4. Major Changes in the Stamp Tax Law

The differences between the Stamp Tax Law and the Provisional Regulations involve a total of 10 aspects, which are summarized as follows:

• Clarifying section: The place of taxation is clarified; the period of taxation is clarified; the taxable basis of unspecified contracts is clarified; Clarified VAT is not regarded as the taxable basis

• Preferential section: Exemption of Stamp Tax for selected vouchers; reduction of tax rate for selected tax items

• New section: Provision for withholding agents is added.

• Modifications section: Modification of the names of tax items; elimination of the trailing number provision; reduction of the scope of taxation

5. Suggestions on tax treatment after the implementation of the Stamp Tax Law

Avoiding tax risks arising from contracts with two or more tax items: The new law stipulates that if the same contract involves different tax items, it should be taxed separately according to the different tax items, and if no distinction is made, it should be levied at a higher rate.

Avoiding tax liabilities arising from the calculation of VAT into the contract amount: The new law stipulates that where Stamp Tax is levied based on the contract amount, it shall be levied on the amount excluding VAT if the contract amount excludes VAT, while it shall be levied on the amount including VAT if the contract amount only shows the amount including VAT.

The implementation of the Stamp Tax Law has adjusted the contracts signed by enterprises from categorization to taxation standards, so enterprises should handle contracts involving different kinds of transactions with caution to avoid tax-related risks.

Disclaimer

The above content is provided for informational purposes only. The provision of this article does not create a professional mandate between DP Group and the reader and does not constitute legal or financial advice. Professional advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal or financial advice.