China

Is a Permanent Representative Office registered in China subject to taxes? A Permanent Representative Office is regarded as a permanent establishment (PE) of the head office in China. However, having a PE in China does not necessarily mean that the FE is subject to taxes in China. We need to examine whether the activities being carried out by the Permanent Representative Office are tax-exempt or taxable in light of the prevailing tax regulations and practice in China. The major legislations include PRC Income Tax Law for Foreign Investment Enterprise and Foreign Enterprise, its Implementation Regulations, the PRC Business Tax Tentative Regulations, ministerial regulations and rules issued by the State Administration of Taxation. See also: Business Tax, Enterprise Income Tax (EIT), Individual Income Tax, Foreign Investment Taxation If the Permanent Representative Office is found to be carrying on a taxable activity – even though the Permanent Representative Office has not applied […]

Foreign enterprises with their head offices in China are taxed on their worldwide income. Tax credit is allowed for income taxes paid to other countries on certain incomes. Other foreign enterprises doing business in Shanghai and non-resident enterprises are taxed on income derived from China source only. There are two systems of tax authorities in China, namely, National Tax Bureau and the Local Tax Bureau. In general, the National Tax Bureau is responsible for assessing and collecting taxes for enterprises and corporations, while the Local Tax Bureau is responsible for individual income taxes and property taxes. MAJOR TAXES ON FOREIGN ENTERPRISES Foreign enterprise taxpayers can be classified into (1) Foreign investment enterprises, which include equity joint ventures, cooperative / contractual joint ventures and wholly foreign-owned enterprises and (2) Foreign enterprises, which include Permanent representative offices and branches. Foreign invested enterprises and foreign enterprises doing business in China are liable to […]

Employees have the legal rights to obtain specified remuneration, allowance, bonus, subsidy and other welfare benefits. This article aims to provide a summary of those remunerations and welfare in China. Annual Leave Employees who have worked continuously for one year or more are entitled to paid annual leave. The days of annual leave which may be taken by an employee shall be determined according to the employee’s accumulative working time which shall cover the employee’s working time in the same or different employers and the hours deemed as working time by any law, administrative regulation or State Council provisions. The annual leave shall be five days for employees who have accumulatively worked for 1-10 year(s); 10 days for employees who have accumulatively worked 10-20 years; and 15 days for employees who have accumulatively worked for 20 years or more. The annual leave shall be additional to national legal holidays and […]

Shenzhen Social Insurance Contribution Rates Effective from 1 February 2014 Type of Social Insurance Scope of Application Contributions Rate Payment Base (02/01/2014-06/30/2014)  Total  Employer Employee Lower Limit Upper Limit Standard 1 Pension Insurance Basic Pension Insurance + Local Supplementary Pension Insurance Shenzhen Residence 22% 14% 8% 1,80814,754 1,808 It is based on the gross monthly salary. It cannot be higher than 300% of last year’s average salary of Shenzhen employees. But it also cannot be less than the minimum monthly wages of Shenzhen employees. Basic Pension Insurance Non-Shenzhen Residence 21% 13% 8% 14,754 1,808 2 Medical Insurance  First Grade Basic Medical Insurance All Employees 8.7% 6% 2% 14,754 2,951 It is based on the monthly total salary but cannot be higher than 300% of last year’s average salary of Shenzhen employees, also cannot be less than 60% of last year’s average salary of Shenzhen employees. Local Supplementary Medical Insurance 0.2% […]

Enterprises are encouraged to invest more in R&D. The total R&D expenditures of hi-tech enterprises can be included in their costs. If the expenditures accrue by 10% (including 10%) than the previous year, and they are in compliance with the country’s tax laws and regulations, then an additional 50% of the expenditures is, upon the approval by the taxation authority, allowed to be deducted from the taxable sum of the year. *(Note 5) If a non-governmental technological enterprise has been put into operation for over 2 years with integrated management system, and a yearly payment of tax of over RMB200,000 Yuan, its employees in compliance with the related regulations of the SEZ can apply for permanent residence in the city. The number will be determined by the sum of the paid tax. *(Note 8) National treatment will be given to foreign-invested enterprises and foreign employees; for foreign-invested enterprises to produce […]

1. Sales Threshold of Business Tax From April 1st, 2003 (the taxable period), the rules of sales threshold of Business Tax for individual taxpayers in Shenzhen have been made the following adjustment: (1) For tax payment on a monthly basis, the threshold for leasing private property is 1000 yuan of its monthly turnover, for other business operation the threshold is 1000 yuan of its monthly turnover. (2) For tax payment at each time (or day), the threshold is 100 yuan of its turnover each time (or day). The taxpayer whose sales turnover does not reach the threshold as above-mentioned rules shall be exempt from Business Tax. 2. Reduction and Exemption of Business Tax The following items may be exempt from Business Tax: (1) Nursing Services provided by nurseries, kindergartens, home for the aged, welfare institution for the handicapped, matchmaking and funeral services; (2) Services provided by the disabled on individual […]

On 16 November 2011, the Chinese Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly issued Caishui [2011] No. 110 (Circular 110) and Caishui [2011] No. 111 (Circular 111) which set out the details of the Shanghai VAT pilot arrangements (VAT Pilot rules). Circular 110 contains the general framework of the VAT pilot while Circular 111 details the implementation rules that are specifically applicable to Shanghai. Circular 110, Notice for the Introduction of the Pilot Scheme to Convert Business Tax to VAT, outlines the general principles for the overall VAT reform pilot program in China (although no date for the full reform pilot program is mentioned). The Circular clarifies that the VAT reform pilot program will be carried out in two phases:  Phase 1: The initial pilot applicable to specific sectors in Shanghai; and  Phase 2: Roll out of the pilot to other regions, or […]

Characteristics of a WFOE Wholly Foreign Owned Enterprise (WFOE), also known as Wholly Owned Foreign Enterprise (WOFE), is a limited liability company, the establishment of which is governed both by the Company Law of PRC and Law of the PRC on Enterprises Operating Exclusively with Foreign Capital. A WFOE can engage itself in approved business activities and issue tax invoices on its own. It is a corporation and a tax resident. All shareholders of WFOE should not be Chinese nationals. Name of a WFOE The name of the WFOE is governed by “Regulations on the Management of name of Enterprises”. Since WFOE is a limited liability company, its name should be in the form of “Name of City + Name of the Enterprise +Industry+ Company Limited “. Accordingly, a company registered in Shanghai will normally bear a name like: US Corp Software Development (Shanghai) Limited. There are certain restrictions on […]

Introduction Shanghai is the financial hub of China. It is estimated that over 30% of commercial activities in China go through Shanghai and its adjacent areas. At the end of year 2005, over half of the Fortune 500 firms had set up their presences in Shanghai, either in the form of Permanent Representative Office (RO), Wholly Foreign Owned Enterprises (WFOE, also known as Wholly Owned Foreign Enterprises) or Equity Joint Ventures (EJV). With more than 200 years’ history for the financial industry, Shanghai was the biggest financial center in China and Far East’s major commercial center in 1920s and 1930s. Since 1990s, Shanghai has regained much of its vitality and is gradually emerging as a financial center for the region once again. Location Surrounded by the Yangtze River in the north, the East China Sea in the east, the Hangzhou Gulf in the south and Jiangsu and Zhejiang provinces in […]

Expatriates on extended business trips to China If you are sent by your organization to China and your salary is paid off-shore (probably in your home country) and you spend more than 183 days in China in a calendar year, than you have to pay IIT in China based on the days you effectively spend in the country. This means that if you spend in China, let’s say, 184 days within a calendar year, than you would have to pay taxes on all income sourced from China (meaning income related to your work performed in China). Foreigners working for legal enterprises in China Without going into too many complicated calculations and theories, if you hold positions such as the Chief Representative (CR) of a Representative Office (RO) or the General Manager of a Chinese Limited Company, Wholly Foreign Owned Enterprise or a Joint Venture anywhere in China, then you are […]