| Client | A Shenzhen information technology services company owned by an Eastern European individual |
|---|---|
| Industry | Information technology services |
| Headquarters | China |
| Entity type and location | Foreign-invested enterprise, Shenzhen |
| Services used | Equity transfer tax filing |
| Project period | 1 August 2026 – 30 October 2026 |
When an Eastern European individual transferred shares in a Shenzhen information technology services company, the questions were whether the tax treaty between China and the shareholder's country of residence applied and what had to be filed in China. Hongda Service reviewed treaty eligibility, prepared the filing and calculated the taxes arising from the transfer.
The company and the transaction
The company was a foreign-invested enterprise in Shenzhen providing information and technical services, and its assets consisted mainly of cash and receivables. The selling shareholder, an Eastern European tax resident holding a valid residence certificate, transferred the shares to an overseas company.
Assessing treaty treatment
Under the capital gains article of the applicable treaty, China may tax the gain if more than 50% of the shares' value derives directly or indirectly from immovable property in China. The test looks at where the shares' value comes from, not at the company's industry.
Under the same article, gains not covered by its preceding paragraphs are taxable only in the seller's country of treaty residence, subject to the treaty's conditions and anti-abuse rules. Eligibility therefore depends on the seller's treaty residence, the property transferred and any connection with a permanent establishment or fixed base in China.
Stamp duty is assessed separately: non-securities equity transfer instruments are taxed at the statutory rate of 0.05%, with each party taxed on its own amount. An instrument signed outside China can still fall within China's rules when it concerns equity in a Chinese resident enterprise.
Hongda Service's work
Hongda Service first assessed whether treaty treatment applied to the transfer. It then confirmed the tax filing requirements and prepared the Information Reporting Form for Non-resident Taxpayers Claiming Treaty Benefits. Finally, it calculated the taxes involved and handled the equity transfer tax filing formalities.
China's treaty-claim procedure is based on self-assessment: an eligible non-resident assesses eligibility, claims the benefit when filing, and keeps supporting records for inspection. A claim can also be made through the withholding agent's filing.
Supporting records and timeline
The records kept for this case were a tax residence certificate from the seller's country of residence for the year the income arose or the preceding year, the share transfer contract or agreement, and the company's financial statements. Under the treaty-claim rules, the residence certificate must be issued by the competent tax authority of the other jurisdiction.
The project ran from 1 August to 30 October 2026.
To discuss the tax filing for a planned equity transfer, contact Hongda Service.