In 2009 China's revenue from the taxation of non-residents reached CNY 56 billion, marking a growth rate of 45.9 percent over the past year. Of this total, the income tax on nonresident companies was CNY 41 billion, reflecting an increase of 55 percent over the previous year's amount. This steep growth in tax revenue was attributed primarily to the rapid development of domestic legislation governing the taxation of non-residents and the g rowing anti-avoidance efforts of tax authorities in China. Meanwhile, access to tax treaty benefits by nonresidents has become subject to much more stringent requirements, and more investment in-come derived by nonresidents from China is subject to tax in China, namely dividends, interest, and gains from the transfer of shares.
    This article focuses on China's taxation of gains derived by nonresident shareholders from transferring shares of Chinese legal entities when those shares neither derive their value from immovable property situated in China nor are effectively connected with a permanent establishment that a nonresident shareholder has in China.