On 22 November 2018, China's Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly issued circular Caishui  No. 108 (Circular 108), which stipulates that foreign institutional investors are exempt from China Corporate Income Tax (CIT) and Value Added Tax (VAT). The exemptions are in respect of bond interest income received from 7 November 2018 to 6 November 2021 from investments in China's bond market. This follows the three-year exemption proposal announced by the Standing Committee of the State Council on 30 August 2018.
Circular 108 brings good news to foreign institutional investors – reducing their tax burdens and clarifying their uncertain tax positions and tax compliance concerns. However, Circular 108 still leaves a number of outstanding tax issues for foreign investors to consider and the Chinese tax authority to clarify.
Please read our Financial Services Tax News Flash for more details and insights.