Foreign enterprises are facing a higher tax burden in the mainland under a new ruling by the State Administration of Taxation dealing with royalty charges on the transfer of intangible assets.
KPMG Peat Marwick China tax principal Peter Kung advised investors to restructure their arrangements to minimise tax payouts.
According to the mainland's Foreign Enterprise Income Tax Law, foreign enterprises without a mainland establishment that receive royalties from mainland entities will be subject to a 10 per cent withholding tax.
The tax administration issued a clarification in January that a 5 per cent business tax would also be levied on cross-border royalties.
Under the latest ruling, foreign firms have to pay five percentage points more in tax on royalty receipts.
Intangible assets cover patents, technology, copyrights and goodwill.
'We find regional governments have become more aggressive in tightening tax enforcement,' Mr Kung said.
