Globe-Trotting Sportsman Or Entertainer: China

An Chinese citizen with extensive, international, multi-sourced income is not in a good tax situation unless he or she can establish non-residence, since full, world-wide taxation of income will apply.

If resident in China, the peripatetic professional may well find himself paying withholding tax in a number of countries which cannot in some cases be reclaimed or set off against Chinese taxation because of the absence of a tax treaty.

Such an individual will almost certainly resort to corporate structures to market his or her skills and manage derivative income flows. China's new Enterprise Income Tax law has introduced a set of modern anti-avoidance paraphernalia, including CFC rules, a GAAR, transfer pricing etc. But the individual sector remains mostly free of such rules, and Chinese residents have felt free to accumulate overseas corporate and trust assets; it remains to be seen for how long these freedoms will remain in place.

In March 2009 the Chinese State Administration of Taxation removed tax privileges afforded under various double taxation treaties to foreign investors who misuse the system of 'special purpose vehicles' as a means of reducing their tax liabilities or circumventing exchange controls. The Special Purpose Vehicle (SPV) allows foreign investors, who create business ventures with local partners in China, two main tax advantages - to apply withholding tax on dividends remitted abroad at a lower rate where this applies under an applicable double taxation treaty and exemption from Chinese capital gains tax on sale of their holdings. At present tax on dividends in China is at the rate of 10% but Singapore and Hong Kong double taxation treaties allow this to be reduced to 5%.

Apart from the extra difficulty of minimising tax on the income side, a Chinese-resident sportsman or entertainer will be in the same position as any other Chinese resident. (Select 'High-Tax Country Resident' and 'Italy' for a fuller description).

In order to lose tax residence it is first necessary to stop fulfilling residence criteria in a given tax year.

Foreign sportsmen and entertainers' earnings in China are likely to be subject to withholding tax at 10%, but double tax avoidance treaties apply in many cases.

If a foreign sportsman or entertainer becomes a Chinese resident, then he or she is in the same position as an expatriate executive (select 'Expatriate Executive' and 'China').

www.lowtax.net contains details of the offshore business sectors of 50 jurisdictions, and their taxation.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.