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When are service fees deemed to be royalty fees in China?


In accordance with Circular No. 507 , if, in the course of the transfer or licensing of technical know-how, a licensor assigns personnel to support and guide the licensee in using the technical know-how and charges fees for these services, then these service fees, whether charged separately or included in the technology price, will be deemed as royalty fees and subject to the royalty provisions of double tax avoidance agreements (DTAs). This means that even if these services are provided offshore, they will be subject to a 10 percent corporate income tax (CIT) withholding tax in addition to value-added tax (VAT), unless a lower tax rate applies under a tax treaty.

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