By Inès Liu
More and more high-level sporting events are taking place in China. This year, the NHL and NBA have held exhibitions in China, while the country’s sporting events – such as the Shanghai Masters tennis tournament and the Formula 1 Chinese Grand Prix – gain international prestige. . Beijing will host the Olympic Winter Games in 2022 after successfully hosting the Summer Games in 2008.
Besides these high profile events, countless small events are being organized across the country. However, these events are subject to a unique tax treatment in China. This article explores the tax requirements of foreign sporting event companies and the taxation of foreign athletes in China.
Taxation of foreign companies of sporting events
Foreign sports event companies entering China, by law, require a partnership with an approved Chinese event promotion company. As part of the relationship, the foreign sporting events company must allow an approved Chinese promoter to use its branded products and send personnel to manage and monitor local events for a certain period.
Trademark authorization tax
A license allows Chinese promoters to host games in China in exchange for a royalty. By definition, if payment is made in connection with the use of intellectual property, such as patents, copyrights, trademarks and proprietary technology, it would be considered a royalty.
When the Chinese promotion company makes the payment to the foreign sporting event company, the fee collected by the foreign sporting event company is subject to value added tax (VAT) and its surcharge. In addition, the foreign sports events company is also subject to withholding tax on its Chinese source royalty income.
Tax on other management-related services
When a foreign sports event company provides services to a Chinese promoter in China, as a rule, when the recipient of the service or the service provider is located in China, the foreign event company will bear VAT. Thus, the foreign event company will be subject to VAT and its surcharges will be subject to VAT and its surcharges, regardless of the physical location where the services are actually rendered.
Note, according to China’s Double Taxation Agreements (DTAs) with other countries, foreign sporting event companies must also manage to mitigate the risk of permanent establishment (PE) to avoid or reduce the risk of payments. unexpected taxes.
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Taxation of income of foreign athletes
Here, we analyze how VAT, Corporate Tax (CIT) and Personal Income Tax (IIT) apply to three different categories of foreign athletes in China:
- Independent foreign athletes
- Foreign athletes with agents
- Foreign athletes with a club employment contract
The rider income is referred to as “service income”. VAT does not apply if the income is not considered Chinese source income. In accordance with Chinese VAT regulations, the scope of taxation is the sale of services in China, which means that the provider or recipient of the service is located in China. Therefore:
- No VAT will be due if the athlete is a foreign national
- VAT will be applicable if the athlete is a Chinese national
For independent foreign athletes, if the sponsorship fee is less than RMB 30,000 (USD 4,540), the sponsorship fee is exempt from any payment of VAT.
According to China’s CIT regulations, for revenue from the provision of services, the source should be determined based on the location of the services. Therefore, part of the sponsorship income can be considered as Chinese source income for the activities of foreign athletes in China.
However, under most of China’s DTAs with other countries, the commercial profits of an enterprise of a Contracting State are not taxable in China, unless it carries on business through the intermediary of an ES located in China. The provision of services will only constitute a PE if it lasts longer than 183 days or six months in a 12 month period.
For a service project that lasts longer than a year, the 183 days or six months will be calculated on a rolling basis. If the threshold is met within a 12 month period, all services provided for the same or a related project are considered a PE.
If foreign athletes attend a sporting event and have resided in China for more than 183 days, they are subject to Personal Income Tax (“IIT”), since the income is derived from activities carried out in China. This is the case, whether the endorsement comes from a Chinese or foreign company.
If the foreign athletes are staying in China for a period of 183 days or less and the approval fee is from a foreign company, they can apply for a treaty benefit from the relevant tax office for an exemption from the IIT under protection of a DTA. However, if a Chinese company pays the approval fee, the IIT will be charged as no DTA is involved.
Tax treatment of prices and premiums
A prize or bonus won by an athlete is considered pension income. Therefore, no VAT will be applied to this income.
As with the tax treatment of sponsorship fees, in accordance with China’s CIT regulations, part of a prize, gift, or award may be considered Chinese-source income for the activities of a foreign athlete in China.
However, under most of China’s DTAs with other countries, no CIT charge will apply if a foreign athlete’s agent or club physically stays in China for less than 183 days or less than six months. over a 12 month period.
For this unforeseen income, an IIT rate of 20% will also be levied, in accordance with the applicable DTAs.
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Optimize your tax obligations
International sporting event companies and foreign athletes face unique tax issues in China. Sporting events in China are often organized irregularly and only for short periods of time, and frequently take place in multiple locations. Moreover, the companies organizing such events and the athletes themselves often do not have significant experience in China.
Companies and athletes participating in sporting events based in China have several tax issues to consider in order to optimize their tax burdens. Strategic planning of the location and schedule of activities, along with the use of relevant DTAs, can reduce the total costs of a sporting event and ensure compliance in an unfamiliar environment.
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