Tax: Luxembourg

Brazil, the first Latin American country to emerge from recession

Switzerland and the USA sign revised double taxation agreement

Private investors in China

THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLANDJuly // August // September 2009

Can You Hear Me?

Can You Hear Me?

EDITORIAL

De Vittori of Switzerland is an international consulting firm, established in Lugano, Switzerland, with branches in Bulgaria, China, Cyprus, Italy, Luxembourg, Morocco, Spain, the United Kingdom and the USA.

Its multilingual team includes accountants, tax consultants and lawyers and offers tailor-made solutions and advisory services to a global clientele in connection with the set-up and management of companies in 288 jurisdictions.

De Vittori of Switzerland prides itself on experience acquired in the field of international tax planning. With the publication of our new quarterly magazine, we take a step closer to our clients. The periodical ably combines graphic elegance with content relevant to today’s global marketplaces. It will contain surveys, dealing with topics such as Taxation and Economy, as well as information on current events, such as News from Switzerland and News from the world.

We hope our international clientele will be pleased by this initiative and will find the ma-gazine informative. We take this opportunity to remind all our valued customers and associates that we welcome any contributions. Our Associated and projects survey is ready to host all projects and articles we consider worthy of disclosure.

We look forward to receiving your comments and we send our best regards

Alessandro PumiliaEditorial Director

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De Vittori of Switzerland

We work side by side with you to solve every strategic operating need.

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Taxation: Luxembourg

Economy: Brazil, the first Latin American country to emerge from recession

News from SwitzerlandSwitzerland removed from OECD grey list

News from the worldBusiness Community Urges UK Corporate Tax Review

De Vittori of SwitzerlandSwitzerland is one of the world’s most affluent countries

Jurisdictions: People’s Republic of China

inside this issue

De Vittori of Switzerland

A New IP Tax Regime

Rules and regulations surroun-

ding intellectual property (IP) are

continually evolving. In today’s

competitive world it has become

important to safeguard trademarks,

copyrights, database rights, patents

and confidential information rights.

IP protection from possible forgeries

and/or imitations is at the base of a

solid business strategy. Luxembou-

rg’s new favourable IP tax regime

marks yet again the Government’s

efforts to stimulate IP research and

development in and surrounding Lu-

xembourg. The hallmark of the IP tax

regime is an 80 percent exemption

on royalties and capital gains deri-

ving from many types of IP. Compa-

nies benefiting from the new regime

would be subject to an effective

tax rate as low as 5.72 percent on

qualifying “net” IP income (i.e.,

gross IP income reduced by directly

related expenses, depreciations and

write-offs).

The IP tax regime broadens the

scope of qualifying IP rights to inclu-

de patents, trademarks, designs/

models, internet domain names

and software copyrights relating to

standard software. Service marks

(i.e., trademarks identifying a service

rather than a product) that currently

represent a majority of registered

marks, are also covered. Copyrights

for literary or artistic work, plans,

secret formulae and processes as

well as know-how remain, however,

outside the scope of the new IP tax

regime.

Conditions for the application of the new IP tax regimeIn order to benefit from the new Lu-

xembourg IP tax regime, qualifying IP

rights must fulfil the following criteria:

- acquisition or development

after December 31, 2007;

- no acquisition from directly related

companies;

- Capitalisation of expenses,

amortisations and write-offs

economically related to the IP.

tax exempt company into a taxable

company (e.g., the conversion of

a holding 1929 into a fully taxable

SOPARFI) does not qualify as a new

acquisition for the purposes of the IP

tax regime. Consequently, quali-

fying IP rights may in such cases only

benefit from the partial tax exem-

ption if the original acquisition date

was later than December 31, 2007.

Should a foreign company migrate

to Luxembourg, the original acquisi-

tion date (rather than the migration

date) is to be considered. Where

IP rights are allocated to a Luxem-

bourg permanent establishment

of a foreign company, the original

acquisition date at the level of the

parent company (rather than the

allocation date) is to be considered.

Where a foreign permanent establi-

shment of a Luxembourg company

acquires or develops a qualifying IP

right and subsequently allocates it

to the Luxembourg head office, the

original acquisition or development

date should be considered.

The partial exemption does not

apply to IP acquisitions involving

directly related companies; that is,

where ownership exceeds 10 per-

cent. Incidentally, the law specifies

three cases of directly related com-

panies where the acquisition of IP

rights cannot benefit from the IP tax

regime. Importantly, participations

held via entities that are deemed

to be transparent for Luxembourg

tax purposes (e.g., partnerships) are

considered “direct participations”.

Where IP rights are disposed of by

the parent company to its Luxem-

bourg IP company, the 10 percent

threshold is verified at the time of

the acquisition. However, where IP

rights are contributed, the 10 per-

TAXATION

The burden of proof for meeting

these cumulative conditions is on the

taxpayer. Though the Luxembourg

IP regime is in principle not optional,

the regime should only apply where

taxpayers claim its application. The

application of the IP tax regime in

specific cases may be confirmed

before the Luxembourg tax autho-

rities in the form of an advance tax

clearance.

In order to benefit from the Luxem-bourg IP tax regime, qualifying IP rights must be acquired or develo-ped after December 31, 2007. Where IP rights are acquired, the acquisition date should be determined in the purchase agreement and therefore not give rise to particular practical difficulties. Should IP be acquired in the frame of an exchange of assets, the exchange date is decisive.

The Circular clarifies the situation

where IP rights are developed. For

patents and internet domain names

the date of development is the

date of application for registration.

In case of trademarks, designs and

models, the date of registration is

relevant. Registration is not, however,

applicable to copyrights relating to

standard software. Here, conside-

ration must be given to the date at

which all necessary development

work is finalised and the product

may be marketed. For transac-

tions eligible for rollover relief (e.g.,

mergers, demergers) the original

acquisition date is to be considered

provided that such transactions are

performed in a tax neutral manner

(i.e., where book values are conti-

nued). Likewise, the conversion of a

Luxembourg

7.

cent threshold is verified before the

contribution (and not following the

contribution). It follows that where IP

rights are contributed by a com-

pany – irrespective of its country of

residence – to a Luxembourg com-

pany, and the direct shareholding

does not exceed 10 percent (before

the contribution), the application for

the IP tax regime should in principle

not be challenged. Moreover, as this

condition only applies to “direct”

affiliates, the acquisition of qualifying

IP rights from, for instance, an indi-

rect shareholder or another indirect

affiliate, should not jeopardise the

application of the IP tax regime.

Finally, qualifying IP rights may be

acquired from individual sharehol-

ders irrespective of the sharehol-

ding percentage. Importantly, the

directly related affiliates principle

is only restricted to the transfer of

IP rights. Thus, qualifying IP income

may benefit from the partial IP tax

exemption where it is received from

“directly” related affiliates.Where a

Luxembourg company self-develops

qualifying IP rights, expenses, amorti-

sations, and write-offs, economically

related to the IP, it must be capita-

lised in the first fiscal year for which

the benefits of the IP tax regime are

claimed. The book value is to be

amortised over the useful lifetime of

the IP right.

Companies that have either their

seat or place of effective mana-

gement in Luxembourg are subject

to Luxembourg corporate income

tax on their worldwide income at a

rate of 21.84 percent. However, the

Luxembourg IP tax regime provides

that net IP income deriving from

qualifying IP rights as well as capital

gains realised upon their disposal,

are tax exempt at 80 percent. Net

IP income is determined by deduc-

ting from the IP income, all directly

related costs (including financing

costs and amortisation). For the pur-

poses of maximising the partial tax

exemption, it is advisable to finance

IP rights benefiting from the IP tax re-

gime with equity. For taxpayers using

self-developed qualifying patents,

the notional deduction is deter-

mined as the arm’s length royalty

that would have been received by

the taxpayer, had he licensed the

patent to a third party. It is neces-

sary that the taxpayer capitalise

all development costs incurred,

in the first fiscal year for which the

benefits of the IP tax regime are

claimed. Though this capitalisation

should increase the company’s

taxable income, it should nonethe-

less ensure tax neutrality. Indeed,

formerly tax deductible costs may

reduce taxable income or trigger

tax losses carried forward that may

offset income in connection with the

capitalisation. Losses incurred in a

fiscal year and deriving from an IP

right should in principle be fully tax

deductible. However, where capital

gains are realised upon the disposal

of an IP right, losses incurred prior to

the disposal are 80 percent recap-

tured. Crucially, should no capital

gains be realised, the recapture

mechanism should not trigger any

deemed income.

Source

BNA International, London. EC2R

8AY, UK, www.bnai.com

“In today’s competitive world it has become important to safeguard trademarks, copyrights, database rights, patents and confidential information rights.”

9.

De Vittori of Switzerland

GoodEconomyBrazil, the first Latin American country to emerge from recession

Brazil is the first Latin American

country to emerge from recession—

and one of the earliest among the

G-20 countries to have done so—

following a 1.9% quarter-on-quarter

expansion in economic activity

in the period from April to June.

Whereas the global environment re-

mains difficult and the export sector

continues to struggle, the strength of

domestic demand has propelled the

economy to the start of a recovery.

The second quarter rebound came

after two consecutive quarters

of shrinkage (1% in the first three

months of 2009 and 3.4% in the last

three months of 2008), which had

put Brazil into a technical recession.

This relatively short recession was

the first for Brazil since 2003. The

quick economic rebound is attribu-

table to the strength of domestic

demand, particularly household

expenditure, which grew by 2.1% in

the second quarter. Exports of goods

and services grew by 14.1%, while

imports rose by 1.5%. Government

consumption grew barely, at 0.1%,

while gross fixed investment was flat

quarter-on-quarter.

On a year-on-year basis, the eco-

nomy still contracted, by 1.2%, in the

second quarter of 2008, though this

was at a slower pace than the 1.8%

shrinkage recorded in the first quar-

ter. Private consumption increased

by 3.2% year-on-year (up from just

1.3% in the first quarter). However,

government spending rose by just

2.2%, the smallest increase for more

than three years. Investment con-

tinued to fall back, with gross fixed

capital formation down 17% from

a year earlier (the sharpest such

contraction since the data series be-

gan in 1996). Exports of goods and

services fell by 11.4%, easing from

the 15.2% decline of the first quarter.

However, imports fell more steeply,

by 16.5% compared with a drop of

16% in the first quarter.

Still finance minister Guido Mantega,

highlights the fact that Brazil was

one of the last major economies to

fall into recession in 2008, and one of

the quickest to bounce back. This is

testament, he says, to Brazil’s strong

macroeconomic fundamentals

and effective fiscal and monetary

policies. He expects the recovery

to speed up in the third and fourth

quarters; and, whereas GDP shrank

by 1.5% year on year in the first half

of 2009, he expects it to grow by

3.5% in the second. This would bring

full-year growth to 1%.

The second-quarter result was so-

mewhat stronger than the Economist

Intelligence Unit had been expec-

ting. As a result, we now see GDP

growth finishing the year closer to

zero, rather than our most recent

projection of a 1% contraction.

Brazil’s growth rate is expected to

strengthen in 2010, assuming a mild

global recovery, reinforced by the

boost to household expenditure

from monetary easing and lower

inflation. This will also help investment

to stage a (partial) recovery in 2010,

supported also by a turn in the

inventory cycle. Public spending is

expected to pick up with the appro-

ach of the October 2010 Presidential

election. We presently forecast that

real GDP will expand by 3.3% in 2010,

although this is below Mr. Mantega’s

current expectation of 4% or better.

The mildness of Brazil’s recession—

which is especially notable conside-

ring the high base of comparison—

also reflects the high degree of

diversification of the economy and

trading partners, as well as the solidi-

ty of the financial system. The latter

cushioned Brazil from the fallout of

the global financial crisis that hit

last year. And even though exports

are down significantly from a year

earlier, they account for just 13% of

GDP—a much smaller share than in

China, Japan and Germany (where

exports reach around 40% of GDP).

Consequently, the impact of the

global demand downturn has been

more muted for Brazil.

Indeed, various banks and credit-risk

agencies have pointed to Brazil’s

resilience to external shocks as the

reason to maintain its relatively

positive credit ratings. The Standard

& Poor and Fitch Ratings both assign

an investment-grade rating to Brazil’s

sovereign debt, and Moody’s is con-

sidering upgrading its rating to the

same. Further, while the government

has implemented counter-cyclical

fiscal policies, the cost of these has

not been very large. According to

Mr. Mantega, they have cost the

equivalent of 1-1.5% of GDP, as op-

posed to 13% of GDP for China and

6.7% of GDP for the US. The stimulus

measures have included seven con-

secutive months of interest-rate cuts

that put the benchmark rate at a

record low of 8.75% (an easing cycle

that seems to have ended for now);

tax breaks for purchases of cars,

consumer durables and household

appliances; and enhanced credit

supplied by state development

banks.

Given the relatively low cost of the stimulus package, Brazil’s eco-nomy and fiscal situation will be in better shape than those of many other G-20 countries next year. Mr. Mantega believes that the current fiscal stimulus will have run its course by the end of this year, by which time the economy will have its own growth momentum and will not need renewed fiscal support.

Brazil’s quick recovery will also be

good news for other neighbouring

Latin American countries, whose

economies are closely integrated

with that of South America’s largest

nation. Argentina, in particular,

could see expanded demand

for its exports. Brazil’s automotive

sector, for instance, is tied to that of

Argentina, and has been experien-

cing healthy performance in recent

months.

SourceEconomist

Brazil

11.

Bern, 24.09.2009. With today’s signing of the new double taxation agree-ment (DTA) with Qatar by President Hans-Rudolf Merz and the Prime Mi-nister of Qatar, Switzerland has been swift to implement the OECD criteria. It has signed twelve agreements containing a clause on extended administrative assistance in tax mat-ters. Further agreements will follow. Consequently, Switzerland will be removed from the `grey list’ of the OECD Secretariat.

Switzerland and the USA sign revised double taxation agreement Bern, 23.09.2009. Switzerland and

the USA today signed a protocol in

Washington amending the double

taxation agreement (DTA) in the

area of taxes on income. In addition

to other changes, the Protocol of

Amendment also contains provisions

on the exchange of information in

accordance with the OECD stan-

dard. Those provisions were negotia-

ted in line with parameters defined

by the Federal Council. Any request

for administrative assistance must

clearly identify the taxable person

concerned and, in the case of ban-

king information, the bank concer-

ned. As has been the case with past

DTAs, so-called `fishing expeditions’

are not permissible. These provisions

are not applicable retroactively: In

terms of the exchange of banking

information, the effective date is

today, the day of the signing.

Extension of revised DTA with Den-mark to Faroe IslandsBern, 22.09.2009. Switzerland and

Denmark today signed an exchan-

ge of notes in Copenhagen in which

the revised double taxation agree-

ment (DTA) with Denmark has been

extended to the Faroe Islands. The

revised agreement also contains

a provision on the exchange of

information in accordance with the

OECD standard which was negotia-

ted in line with parameters decided

by the Federal Council in the

spring of 2009.

Switzerland and Finland sign revi-sed double taxation agreementBern, 22.09.2009. Switzerland and

Finland today signed a Protocol

amending the double taxation

agreement (DTA) in the area

of taxes on income and assets.

The Protocol of Amendment

also contains a provision on

the exchange of information

in accordance with the OECD

standard which was negotiated

in line with parameters decided

by the Federal Council.

Switzerland and Mexico sign revi-sed double taxation agreementBern, September, 21.09.2009. On

Friday, Switzerland and Mexico

signed a Protocol to amend the

double taxation agreement (DTA)

in the area of taxes on income

in Mexico City. The Protocol of

Amendment also contains a

provision on the exchange of

information in accordance with

the OECD standard which was

negotiated in line with para-

meters decided by the Federal

Council.

Switzerland and Austria sign revised DTASwitzerland and Austria have

recently signed an agreement

revising the existing double taxa-

tion agreement (DTA) between

the two countries, it has been

announced. The revised agree-

ment provides for administrative

assistance in tax matters under

Article 26 of the OECD Model

Convention, and was negotiated

in line with parameters laid out

by the Federal Council. Following

the Federal Council decision on

March 13, 2009, Austria is the fifth

country with which Switzerland

has signed a DTA containing the

extended administrative assistan-

ce clause in accordance with Article

26 of the OECD Model Convention,

after Denmark, Luxembourg, France

and Norway. Up to now, Switzerland

has negotiated DTAs with an exten-

ded administrative assistance clause

with fourteen countries.

Switzerland and Denmark sign revised double taxation agreementBern, 21.08.2009.

Today Switzerland and Denmark

signed the Protocol to amend the

double taxation agreement (DTA) in

the area of income tax and wealth

tax in Copenhagen.

The negotiations with Denmark

were also used to carry out other

amendments regarding dividends.

In the current DTA, only the country

of residence has the right to tax

dividends. The source state does

not have the right to levy taxes on

dividends (so-called zero rate). In

the renegotiated DTA the zero rate

is only applicable to dividends on a

holding of more than 10 per cent of

the capital.

Source

Federal Department of Finance FDF

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ws fro

m Sw

itzerla

ndSwitzerland removed from OECD grey list

13.

De Vittori of Switzerland

Looking ahead, going beyond

September 2009. Despite calls for a cut, most finance directors fear that the rate of corporation tax will either stay the same or increase after the next general election, potentially damaging UK competitiveness, according to new research. A survey of 500 finance directors by business and financial advisors Grant Thor-nton shows 82% expect that the next government, whatever its colour, will ignore calls for a cut in the main rate of corporation tax, currently 28%. However, just under two-thirds (62%) have backed Grant Thornton’s tax manifesto calling for the rate to be cut to 25% or under in order to boost UK competitiveness. Nearly one-third (30%) of Finance Directors believe that the corporation tax rate will increase to between 29% and 30%, and a further 20% believe it will increase to over 30%; 34% believe that it will remain at 28% after the next general election to deal with the mounting fiscal deficit.

Is RAK Offshore The New BVI?August 2009. The government of Ras

Al Khaimah has launched an offsho-

re facility, the second in the UAE,

that is expected to lure investors

looking for a new tax haven. The

initiative, called International Com-

panies Registry, will allow foreign

investors to register offshore compa-

nies in the Ras Al Khaimah Free Trade

Zone (RAK FTZ) without the need to

establish a physical presence, the

zone’s chairman Shaikh Faisal Bin

Saqr Al Qasimi said yesterday. Ras Al

Khaimah officials hope foreign com-

panies will find their offshore system

more appealing than the Jebel Ali

Offshore centre, which was establi-

shed by Dubai in 2003 to position

itself as a tax haven like the Cayman

Islands, Bahamas and Liechtenstein.

Guernsey Receives Recognition On Tax Information ExchangeAugust 2009. HM Treasury in the Uni-

ted Kingdom has issued a statement

welcoming Guernsey’s progress in

signing agreements on the exchan-

ge of information, which is streng-

thening its reputation as a jurisdiction

committed to good governance in

tax matters. Guernsey has recen-

tly concluded its fourteenth Tax

Information Exchange Agreement,

signed with New Zealand on July 21,

and also has agreements with the

following jurisdictions: Denmark, Fa-

roe Isles, Finland, France, Germany,

Greenland, Iceland, Ireland, Ne-

therlands, Norway, Sweden, United

Kingdom and United States.

The SeychellesJuly 2009. The Seychelles have

territorial taxation; thus only locally-

sourced income is taxed. There is

recent, well-formed legislation for

International Business Companies,

Offshore Banks, Insurance Com-

panies, Mutual Funds, Trusts, and

extensive programmes of investment

incentives, as well as the Internatio-

nal Trade Zone, all of these being

basically free of taxes. In 2003, the

government legislated for additional

types of company: Special Licence

Companies, Protected Cell Com-

panies and Limited Partnerships. It

is easy to form corporations, and

privacy is reasonably assured. There

are tax treaties with a number of

countries, including China. Banking

and shipping are the Seychelles two

main offshore industries. The Seychel-

les started to create an IOFC only

quite recently, but by 2008, more

than 50,000 companies had already

been registered. The Trade Zone is

probably the most successful aspect

of the offshore initiative, and that

has more to do with trade than tax.

Malta and Ownership of Property in PortugalJuly 2009. Since 2003 a Portuguese

list of offshore centers has existed,

which imposes certain penalties

against properties held by entities

defined as being offshore. As an

onshore jurisdiction, Malta is not on

this list. Therefore, tax savings can

be generated through the use of a

Malta company to hold property in

Portugal.

Ireland: Tax Exemption for Start-Up CompaniesJuly 2009. In an attempt to encou-

rage the establishment of new

companies a three year remission

from taxation from profits and

capital gains for companies with a

tax liability of less than € 40,000 per

annum was announced in Budget

2009. The aim is to provide a stimulus

for entrepreneurs in a challenging

commercial environment. Compa-

nies that qualify will be fully exempt

from corporation tax on trading

profits and chargeable gains on the

disposal of assets used for the new

trade where the total amount of

corporation tax does not exceed €

40,000. At the current rate of corpo-

ration tax i.e. 12.5% this equates to €

320,000 of profits per year.

Source

Low tax netNe

ws

from

the

wo

rldBusiness Community Urges UK Corporate Tax Review

15.

ContactsFederico De Vittori SA

Viale Stefano Franscini 17

CH-6900 Lugano

Switzerland

Tel. +41 91 912 3000

Fax +41 91 912 3001

ch@devittori.com

Switzerland is one of the world’s most affluent countries. Hundreds of years of

history, backed by social and political stability and an honourable reputation

for efficiency and discretion, have played a decisive part in contributing to

Switzerland’s position as a highly valued financial centre.

From our offices in Lugano we can provide:- Set-up and management of Swiss companies

- Set-up and management of companies worldwide

- Nominee Agreements

- International contracts

- Introduction to the Swiss financial market

- Business Center services

De Vittori of Switzerland utilizes various corporate instruments to administrate assets and activities on behalf of its worldwide clients. These include:- Holding companies

- Trading companies

- Offshore companies

- Royalty companies

- Trusts

- Foundations

- Branches

Company purpose

Founders

Liability

Accounting obligation

Management

Nationality

Image

Taxation

Vat

AG/SA

Holding, trading, manufacturing or

other business under the name of a

company

At least 3 shareholders

Limited by shares

Yes

Board of Directors and auditors

Free

Very good

Contact our offices

7,6% - 8% from January 2011

Branch

Legally dependent, economically

independent business operation of

the main company

Main company

Main company

Yes

Managing Director with domicile in

Switzerland

Free

Main company

Contact our offices

7,6% - 8% from January 2011

R

De Vittori of Switzerland

We were born great…and keep on growing

17.

structure when compared to an

equity joint venture. Namely, the re-

lationship between the foreign and

the local partner may be merely

contractual and the incorporation of

a company with limited liability is not

required.

- wholly foreign owned enterprise (WFOE): it is established exclusively

with the capital of the foreign inve-

stor and it usually operates under the

limited liability company corpora-

te form. Some sectors are still not

accessible to WFOEs, while in some

sectors, a previous authorization by

the Ministry of Commerce is needed.

Taxation of individuals Individuals are subject to perso-

nal income tax on the worldwide

income, while non residents are

liable to tax only on locally sourced

income. Special rules for determi-

ning whether a person is liable to tax

in China are based on the length of

his/her permanence in China as well

as on the source of the employment

income. The tax rate is between 5%

and 45%.

Taxation of companiesResident companies are subject

to corporate income tax on their

worldwide income, at the rate of

25%. Non-resident companies are

liable to tax only with respect to

locally sourced income. The taxable

base is, in general, derived from the

accounting profits. Losses may be

carried forward for 5 years. Transfer

pricing, CFC and thin capitalization

rules apply.

IncentivesStarting from 1st January 2008 the

majority of the tax incentives forese-

en with respect to Foreign Invested

Enterprises has been repealed.

A transitional regime applies with

respect to dividends paid out of

profits earned by Foreign Invested

Enterprises before 1st January 2008.

Similarly, the new uniform tax rate

of 25% will be introduced gradually

with respect to said enterprises. The

tax incentives currently available

focus on a reduced 15% tax rate

Jurisdic

tions

People’s Republic of China

China is a People’s Republic admi-nistratively divided in 23 provinces, four autonomous regions and five metropolitan areas. Its capital is Bei-jing. China is a Member of the most important international organization and is a permanent Member of the UN Security Council. China is curren-tly the third economy in the world in terms of absolute (nominal) GDP.

Corporate law In China private investors may adopt

one of the following forms when

setting up a business entity:

- llimited liability company: in a

limited liability company capital is

divided into common shares. Sha-

reholders (who should not be more

than 50) have limited liability. The

minimum registered capital is 30,000

CNY, unless stricter regulations apply.

Unipersonal limited liability compa-

nies are also admissible, even thou-

gh specific rules in this case apply.

- joint stock company: in a joint

stock company capital is divided

into shares and shareholders have

limited liability. The company should

have at least two founders (and not

more than 200). Restrictions on the

residence of the founders apply;

at least half of them should be

Chinese residents. A minimum of 5

million CNY is required, unless stricter

regulations apply. Shares can be

offered to the public. Government

requirements are more structured

when compared to a limited liability

company. Foreign investors are al-

lowed to operate through a Foreign

Invested Enterprise (FIE) which may

take one of the following business

forms:

- equity joint venture (EJV): an equity

joint venture is a joint investment car-

ried out by foreign investors in con-

junction with a local partner. Such

a joint venture is bound to operate

by means of the incorporation of a

juridical person with limited liability.

- co-operative joint venture: such

a joint venture has a more flexible

for «high technology enterprises»

fulfilling certain requisites. Within said

incentives, special regimes apply

to companies located in Special

Economic Zones and in Shanghai -

Pudong New Area.

Special extra-deductions are forese-

en for resident companies investing

in reaserch and development, focu-

sing on new technologies and com-

pliant with some specific fulfilments.

The extra-deductions consist in a 50%

add up to the deductible R&D costs

as well as special amortization rules

with respect to internally developed

assets (assuming in this respect 150%

of the cost base for an amortization

period of at least 10 years).

Specific tax incentives, such as tax

holidays and reduced tax rates are

granted under some conditions with

respect to investments carried out in

the developing Western Regions.

Special tax incentives are granted to

companies involved in infrastructure

building, subject to some requisites.

Under a certain threshold (5 million

CNY) income deriving from tech-

nology transfer is not subject to tax.

Higher amounts are half exempted

from taxation.

Additionally, the exemption of

customs duty on importation of

self-used equipment from overseas

is also foreseen under some condi-

tions.

Withholding taxesA 10% outbound withholding tax

is levied on dividends paid to non

resident companies, except a lower

treaty rate applies. No withholding

tax is levied on dividends paid out

by qualified FIEs accruing from inco-

me produced, before 1st January

2008, when special tax regimes for

FIEs were still available.

Dividends paid lo foreign compa-

nies that have an establishment

in China and that are connected

to the activity of such permanent

establishment are not subject to

withholding tax. Dividends between

qualified resident enterprises are not

subject to withholding tax.

A 10% outbound withholding tax is

levied on interests, except a lower

treaty rate applies.

A 10% outbound withholding tax is

levied on royalties, except a lower

treaty rate applies.

Vat Entities and individuals engaged

in the sale of goods, processing,

repair service and the importation

of goods are subject to VAT. VAT is

charged at a rate of 17% (a special

rate of 13% apply to certain basic

goods and a 3% rate applies to small

taxpayers). A 7% rate applies only for

input VAT credit on the purchase of

freight fee.

Double Taxation Treaties The Chinese treaty network includes

treaties currently in force with 89

Countries.

Source

Fiscalità internazionale, IPSOA, luglio-

agosto 2009, p. 333, 334.

19.

Published byDe Vittori of Switzerland - Lugano

DirectorAlessandro Pumilia

The information in this brochure is subject to change without notice.Application of the information to specific circumstances requires the advice of professionals who must rely upon their own sources of information before providing advice. The information is intended only as a general guide and is not to be relied upon as the sole basis for any deci-sion without verification from reliable professional sources familiar with the particular circumstances and the applicable laws in force at that time.

DesignGiovanna Capoferri

THE DIGITAL BUSINESS MANAGEMENT MAGAZINE OF DE VITTORI OF SWITZERLANDJuly // August // September 2009