CHINA Law and Practice Contributed by: Zhen Chen, Candy Tang, Flora Qian and Yan Zhao, Fangda Partners
non-resident enterprise obligated to pay corporate income tax in China. Unless otherwise stipulated in the tax treaty, the partnership may enjoy tax treaty benefits for taxable income in China only if it is a tax resident of the other contracting party. Where the tax treaty stipulates that when the income derived by a partnership is deemed as income derived by its partners pursuant to the domestic laws of the other contracting party, then the resident partners from the other contracting party may enjoy tax treaty benefits for their distribution derived by the partnership. In addition, for QFLP funds (see 1.1 General Overview of Jurisdiction ), to the extent that neither the QFLP GP nor the QFLP LP has any place or establishment (or permanent establishment) in the PRC, or the income derived from the QFLP fund is not effectively con - nected with its place or establishment in China, such income distributed by the QFLP fund to the QFLP GP and/or the QFLP LP may qualify for the preferential tax treatment. 4.10 Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS) Compliance Regime The Measures for the Administration of Due Dili - gence on Tax Information of Non-Resident Financial Accounts released in 2017 (the “Measures”) require the PRC financial institutions to obtain the tax resi - dence statuses of account holders or relevant control - ling persons, identify non-resident financial accounts, and collect and report relevant account information. The Measures transferred the Common Reporting Standard (CRS) by the Organisation for Economic Co-operation and Development (OECD) into domestic applicable rules. In September 2018, the State Taxa - tion Administration (STA) completed the first exchange of tax information on financial accounts with tax authorities from other countries and regions. FATCA enacted by the United States requires foreign financial institutions to report information on accounts held by US tax residents (including US citizens and green card holders) to the Internal Revenue Service (IRS). FATCA adopts a bilateral information exchange mechanism, under which the US government signs
bilateral agreements with governments from other countries and regions. Pursuant to the official interpretation on the Measures from the STA, CRS is generally similar to the con - tents of FATCA with certain differences in details, and given that the PRC government is actively negotiating with the US government regarding the FATCA inter - governmental agreement, financial institutions in the PRC may consider co-ordinating CRS and FATCA at the operational level and integrating the declaration documents under the two standards based on their business needs. 4.11 Anti-Money Laundering (AML) and Know Your Customer (KYC) Regime The new Anti-Money Laundering Law (effective on 1 January 2025, the “New AML Law”) marks the first major revision since 2007 and forms the foundation of China’s current AML/KYC framework. Under the New AML Law, designated non-finan - cial institutions are, alongside financial institutions, brought within the category of “regulated entities”. These entities are required to put in place robust inter - nal AML systems proportionate to their business scale and risk profile, and adopt AML measures, including, among others, allocating AML personnel, conducting regular risk assessments, establishing monitoring and reporting IT systems, etc. The AML compliance per - formance of regulated entities may affect their future business operation and further their market competi - tiveness. In relation to KYC, obligations now extend to a broad - er range of circumstances, including the establish - ment of business relationships, the handling of suspi - cious transactions, and any changes in a customer’s risk profile. They also include the identification of beneficial owners and the application of enhanced due diligence to high-risk clients. Also, the Measures for the Administration of Beneficial Owner Informa - tion released in 2024 by the People’s Bank of China and the State Administration for Market Regulation (SAMR) require companies, partnerships, and foreign companies’ branches to file their beneficial ownership information via the SAMR system, which is regarded as a breakthrough in the current PRC KYC regime.
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