January 23, 2009

Qualified Foreign Institutional Investors ("QFII") Subject to Withholding Tax

On January 23, 2009, the State Administration of Taxation issued the Circular on Issues Concerning QFII's Payment of Obligation for Withholding Tax on PRC-Sourced Dividend, Profit Distribution and Interest Income (the "Circular"). The Circular clarifies that, according to the new Enterprise Income Tax Law and its Implementation Rules, withholding tax shall be levied at a rate of ten percent on QFIIs' PRC-sourced dividend profit and interest income upon payment of dividend, profit and interest by PRC-resident enterprise. An eligible QFII may apply to the PRC tax authority for tax relief under applicable tax treaties and enjoy preferential treatment as provided in such tax treaties, which may result in a tax refund. The Circular changes the previous practice in which QFIIs were not required to pay any PRC tax.


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