Taxation on Licensing and Assignment of IP Rights

LICENSING IP RIGHTS

Fees under technology licensing agreements, intellectual property (IP) right licensing agreement received from a source in the PRC by non-resident foreign corporations or individuals shall be subject to a 10% withholding income tax, a 5% business tax, and a stamp tax of 0.03% on the gross amount. The resident payer has the legal obligation to withhold the tax and pay it over to the tax office. Residents of non-PRC tax treaty countries will be subject to a 20% withholding income tax, as reduced to 10% under the Implementation Regulation of the PRC Corporate Income Tax Law.

ASSIGMENT OF IP RIGHTS

Non-resident foreign investor receiving income for the Assignment of IP rights in the PRC will be subject to the following type of taxes: -

Type of tax Rate

1. Income tax 10% on gross sum paid and payable
2. Business tax 5% on gross sum paid and payable (VAT at 6% after the VAT reform)
3. Stamp tax 0.03% on gross sum paid and payable

Foreign companies and nationals must register their IP rights in accordance with the PRC law in order that these rights are legally protected inside the PRC. Note that under the PRC Trade Mark Law and the PRC Patent Law, agreements for the granting of IP license or the transfer of IP rights shall be registered with the PRC State IP authorities for record filing purposes and notify the public by putting up a public notice in the designated official publications. Otherwise, the agreements are not valid.

Agreements for the transfer of patent application rights or patent rights from PRC legal persons or individuals to foreign nationals and companies must obtain government vetting and approval. Otherwise, the transfer is unlawful.

Except for provisions of reduced rate in the DTA, a 10% withholding income tax shall apply to residents in PRC and non-PRC treaty countries.