Effective October 1, 2009, foreign companies and non-residents in China seeking tax treaty relief on dividends, interest, royalties and capital gains will need to apply for approval from the tax bureau. says KPMG China.
According to Circular Guo Shui Fa  No. 124 on "Administrative Measures For Enjoyment of Tax Treaty Treatments by Non-residents," reliefs that do not need approval but require "for-the-record" filing with the tax bureau include relief in respect of permanent establishment, relief for dependent and independent personal services, and other tax treaty reliefs.
The circular points out that the measures do not cover relief in respect of international transportation. Also, where an eligible taxpayer has not made use of the treaty relief available and overpaid tax as a resut, the taxpayer may make a belated approval application or "for-the-record" filing and apply for a tax refund. However, the circuluar adds, such tax refund applications must be made within three years of the date of tax payment.
According to KPMG, taxpayers who have enjoyed tax treaty relief without going through the proper approval application or "for-the-record" filing procedures will be liable for penalites or late payment interest.
KPMG says that the new decree will likely raise compliance costs among businesses, but sees no other significant effect on the effective tax burden, transfer pricing exposures, cash flow burden and other areas.