Archive for the ‘China’ Category
New Taxation Rules for Representative Offices of Foreign Enterprises in China
Wednesday, May 26th, 2010On February 20, 2010, the State Administration of Taxation issued the Provisional Measures for Tax Collection and Administration for Foreign-Enterprise Representative Office (“Provisional Measures”). The Provisional Measures bring significant changes to the existing taxation rules and may have significant implications for the tax liabilities of representative offices (“Rep Offices”).
The Provisional Measures, which apply to representative offices established in China by foreign enterprises, including enterprises in Hong Kong, Macau and Taiwan (i.e. essentially all Rep Offices), are the first regulations clarifying taxation issues relating to foreign representative offices after the Corporate Income Tax Law (“CIT Law”) took effect in 2008. The Provisional Measures bring significant changes to the existing taxation rules related to Rep Offices. The Provisional Measures bring the Corporate Income Tax (“CIT”) of Rep Offices in line with the CIT Law applicable to other enterprises, and clarify that Rep Offices are subject to business tax and value-added tax (“VAT”) on their relevant taxable incomes.
Released on February 20, 2010, the Provisional Measures apply retroactively from January 1, 2010.
Below is a summary of the significant issues in the Provisional Measures
(1) Previous Tax Exemptions Revoked as of January 1, 2010
As of January 1, 2010, the provisional measures invalidate previous tax circulars governing various tax exemptions for representative offices. The tax authorities are prohibited from accepting new CIT exemption applications, whist being required to review and clean up the existing tax exemptions granted to Rep Offices.
The Rep Offices’ income eligible for preferential taxation treatments under a Sino-foreign double taxation agreement (“DTA”) may continue to enjoy such preferential treatments. However, from October 1, 2009, as a prerequisite for enjoying the DTA treatments, the qualified non-tax-resident taxpayers are required to seek approval from or to file for record with a competent tax authority before enjoying such DTA treatments. The application shall be conducted in accordance with the Administrative Measures of Enjoying Tax Treaty Treatments by Non-Tax-Residents (Trial) (GuoShuiFa [2009] 124).
(2) Tax Registration and Filing Requirements
Rep Offices are required to perform tax registration within 30 days after the business registration certificate is issued. When there are any changes to the registration or where the Rep Office is to be closed, the Rep Office shall amend the tax registration or deregister it after liquidation and settlement of all the outstanding tax liabilities.
(3) Accounting and Record-keeping
The Provisional Measures require all Rep Offices to keep accurate accounting books and records according to laws and regulations and to determine the taxable income according to the principle commensurate with the functions and risks the Rep Office actually undertakes. On meeting the statutory requirements of accounting book and record-keeping, Rep Offices are permitted to use actual taxable income to file the CIT returns. If the actual taxable income is used, the Rep Office shall file quarterly the CIT and business tax returns within 15 days of the end of each quarter. Filing of VAT returns is required to be done in accordance with the rules set out in the Provisional Regulations on Value-Added Tax and the implementing regulations.
(4) Taxation of Representative Offices
CIT on the profits of a Rep Office is at the statutory rate of 25% on its taxable profit, and the Rep Office is also liable to pay business tax or VAT. The Rep Office is required to pay CIT and business tax to the appropriate tax authorities within 15 days after the end of each quarter, while it has a duty to report and settle VAT with its tax authorities by the due date according to the revised VAT provisional regulations and its implementation rules.
The Provisional Measures provide that a Rep Office is chargeable to taxes on an actual basis if the Rep Office keeps proper books and records, and can accurately account for the taxable income commensurate with its functions performed and the risks assumed. The normal transfer pricing principles will extend to Rep Offices. However, if a Rep Office does not have proper financial records that accurately reflect revenue, costs or expenses, then the tax authority is empowered to assess the Rep Office’s taxation profits by using a deemed profit rate of no less than 15% of its deemed income, which is either the total revenue (if such figure is available from the records of the Rep Office) or a figure derived using a formula based on the cost-plus method.
Conclusion
Given the impact of the Provisional Measures with the recent developments relating to the administration of Rep Offices (i.e. the limitation on the number of representatives and the restriction on the scope of activities), clients are strongly urged to consider whether a Rep Office is still the most efficient platform for entering the PRC market.
WFOE Registration-Office Address
Monday, March 22nd, 2010Before starting to set up a WFOE in China, the client has to rent an office or a plant (for manufacturing company) in advance. The office could be located in any normal office building in China which could run business. But a virtual address is not allowed for the registration.
Originals (2) of lease agreement (minimum 12 months), and copy of title deed of registered office will be needed during the registration and one thing for clients to remind is that please make sure in the lease contract that the office could be registered a WFOE and otherwise the Landlord should refund the rental. One office room is only allowed to register one company and an already taken office is not available.Registered address and operation location should be the same and if the office address is changed to other districts, all the licenses with business address have to be updated.
Something you may not know during a WFOE formation in China
Thursday, December 17th, 2009The most popular type of running business in China for foreigners is to form a wholly foreign owned enterprise (WFOE).However, obtaining a business license of WFOE is not a little case even for the local Chinese registers. It requires lots of paperwork and a long and complex procedure. Therefore, with the help of a local professional consulting company to take care of the application process is obviously necessary.
It will take two to three months to complete the formation in practice, even though the law says that the process should take no longer than two weeks. Why is it so time consuming? Filling out all the paperwork, preparing long lists of documents such as certificates of incorporation, bank reference letter, leasing contract of office address, ect will take time to begin with. Then, there likely will be obstacles which require correct “guanxi” to be in place. “guanxi” could make whole steps go faster and more smoothly.
For yourself, you just focus on providing all correct information including names, investment amounts, ownership percentage, ect. Pay more careful with the spelling of numbers and foreign names as most Chinese write in a different form of English letters with the local English speakers which may cause trouble getting them right.
As for opening bank in China, they use stamps rather than signatures. Each company has a company stamp, special financial stamp and the legal person has a personal stamp. All banking matters as well as signing contract require you to stamp on the papers. This means that stamps need to be kept in a especially careful way.
Upon the successful registration,you will get all licenses which are packed with red or green covers including business license, enterprise code license, foreign exchange certificate, tax certificate, financial certificate, ect and then you could start your business in China.
Did you invest in China?
Thursday, October 29th, 2009Chinese official says that a large amount of the global top companies have invested in China Since the mid-1990s, and more and more overseas companies have been making their way into Chinese market. The investment covers almost all fields like the manufacturing, service, and rural infrastructure construction sectors, ect. And meanwhile Chinese investment environment has been improving in a large scale which has attracted more and more foreign investors.
Even though the high-tech and trade service industries were most favored by foreign investors, projects funded by foreign companies involve oil, chemical, electronic, machinery, computer, telecommunication equipment, ect. Nearly 90 percent of the projects funded are located in coastal areas and cities such as Shanghai, Guangdong, Jiangsu, Beijing and Shandong, ect.
For some new companies, they usually set up representative offices to do some market research and test the market before they commit themselves to invest in China. By using both the markets and resources from their own homes and China, these companies have remarkably improved their international competitiveness.
Hong Kong companies and China visa issues
Saturday, April 4th, 2009One question that we often get from our clients is whether registering a Hong Kong company can help in obtaining a business visa or a residence permit in China. The answer is NO. Although part of China now, Hong Kong is in reality a very separate jurisdiction, as per the “one country two systems” policy. Hong Kong companies are considered as foreign companies in China, and investment from Hong Kong into the mainland is considered as foreign investment. In that regard, operating a Hong Kong firm is not more helpful to get any visa facility for mainland China, than say a BVI or US company.
The proper way to get a one year residence permit in mainland China as an owner of a Hong Kong company, would therefore be to open a representative office in China for that company, if one doesn’t want to invest in a WFOE (wholly foreign owned enterprise). Obviously additional fees will apply. In most cities it will take about 4 to 6 weeks to process the representative office registration.
