January 23, 2009

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

On January 23, 2009, the State Administration of Taxation issued a Circular on Issues Concerning QFIIs' Payment of 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 10 percent on QFIIs' PRC-sourced dividend and interest income upon payment or accrual of interest by a PRC-resident enterprise. Certain eligible QFIIs may apply to the PRC tax authority for preferential treatment as provided in relevant tax treaties, which preferential treatment may include tax refunds. The Circular changes the previous rules, which did not require QFIIs to pay any PRC tax.


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