July 18, 2022
China’s new Stamp Duty Law is now in effect
The new Stamp Duty (SD) Law of the People's Republic of China (the SD Law), announced by the Standing Committee of the 13th National People's Congress (NPC) last year in June, came into effect on 1 July 2022. The SD Law contains 20 articles which cover the definition of taxpayers, taxable scope, SD rates, tax basis and preferential SD treatment, albeit no fundamental changes were made to the prevailing SD system.
In anticipation of the SD Law coming into effect, the State Taxation Administration (STA) and Ministry of Finance (MOF), prior to 1 July 2022, published a number of circulars to provide further guidance and clarifications on how the SD Law is implemented.
This Alert summarizes the key provisions under the SD Law, and also highlights some of the administerial changes under the recently published regulations.1
Removal of certain taxable/dutiable items
"Certificates of rights, licenses and approvals" and "other accounting books" are no longer listed as a taxable document. Accordingly, documents such as certificates of property, business licenses, and patent certificates will not be subject to stamping requirements from 1 July 2022 onwards.
Incorporation of "finance leasing contracts" and "securities transactions" into the SD Law
Under the SD Law, finance leasing contracts will be subject to SD at 0.01%, with the contractual parties being equally liable, e.g., lessor and lessee each bearing 0.005%.
For securities transactions (referring to equity or equity-based securities transactions), SD will be charged on the transferor at 0.1%.
Notable SD rate changes
The applicable SD rate on "contracts for processing work," "transportation contracts" and "the instruments for the transfer of trademarks, copyrights, patents and know-how" is now 0.03% (0.05% prior to the SD Law coming into effect); "survey and design contracts for engineering constructions" has been reclassified to fall under the "construction project contracts" category, which comes with an applicable SD rate at 0.03%.
Preferential SD treatment on accounting records
The preferential SD rate of 0.025% (which was reduced from 0.05%) on paid-in capital and capital reserves recorded in the accounting books of an enterprise was originally promulgated in Caishui  No. 50 ("Circular 50", i.e., SD reduction and exemption on accounting records). Circular 50 also provides an SD exemption on dutiable accounting books. These preferential treatments have been adopted in the SD Law.
Value-added tax (VAT)
Pursuant to Article 5 of the SD Law, the dutiable amount of a taxable contract/instrument will exclude any VAT amount specified in such contract/instrument.
However, if the VAT amount is not specified in the taxable documents, the entire amount in the contract/instrument may be subject to SD without any deduction of VAT. To mitigate any controversy between taxpayers and tax authorities, it is important that taxpayers segregate the contract price and VAT amount in the taxable contract/instrument.
SD exemption for electronic orders between e-commerce businesses and individual buyers
Electronic orders between e-commerce businesses and individual buyers will not be dutiable transactions under the SD Law. In other words, for electronic orders between e-commerce business and individual buyers, both the seller and buyer are exempt from SD, while orders between e-commerce businesses and other buyers (e.g., entities, enterprises, etc.) will still be subject to SD.
Other key considerations
The SD Law specifically addresses situations where the dutiable contracts are drawn up outside of China, citing that they would still fall within the SD scope, for instance, if the underlying subject matter of a dutiable document relates to the transfer of equity in a Chinese resident enterprise, or real property located in China. The same also applies to documents relating to the transfer of movable assets or trademarks, copyrights, patents and know-how so long as either the transferor or transferee is in China (except for the situation where an overseas entity or individual transfers any of these items to a domestic Chinese entity or individual on the basis that such subject matters are fully utilized outside of China).
In the context of foreign taxpayers (entity or individual), the SD Law also specifies that the domestic agent in China (if any) is the withholding agent, thus obliged to withhold/report the relevant SD liabilities on behalf of the foreign taxpayer(s). In the absence of a domestic agent, the foreign taxpayer(s) are to self-report and settle the corresponding SD liabilities.
The SD Law also provides details and/or guidance on how tax basis should be determined under different circumstances, as well as how "taxpayer" is determined in situations where a contract is entered into/executed by multiple parties. Taxpayers should reference the noted circulars and consult with tax professionals on any issues regarding the new SD Law.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
Ernst & Young Ernst & Young (China) Advisory Limited
Ernst & Young LLP (United States), China Tax Desk
Ernst & Young LLP (United Kingdom), China Tax Desk, London
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
1 The key circulars issued include the following, all of which came into effect on 1 July 2022: