Business Tax on Banking Activities

October 31, 2000 | BY

clpstaff

In July, the State Administration of Taxation (SAT) issued the Several Business Tax Policy Questions Concerning Foreign-funded Financial Institutions Circular,…

In July, the State Administration of Taxation (SAT) issued the Several Business Tax Policy Questions Concerning Foreign-funded Financial Institutions Circular, Guo Shui Fa No.135 (the Notice). It confirms the ever increasing application of business tax to financial activities.

Business tax applies to the interest derived from loans granted by domestic or foreign invested banks. Such taxation constitutes an essential matter for Foreign-funded Financial Institutions (FIFIs) insofar as the remaining margin between interest paid on borrowed funds and interest received on loans is often short and the profitability is also negatively affected by the business tax burden.

FIFIs engaged in re-lending are only taxed on their margin (Margin Taxation Regime).

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