Viewpoints

5.1. Deemed Revenue The following gross-up formula is prescribed by the tax bureau to estimate the taxable revenue from the costs of the Permanent Representative Office: Taxable revenue = Total expenses of the RO (1 – BT – Deemed profit rate) This may be an easier way to understand the rationale behind estimating tax revenue. BT should also be regarded as part of the expenses of a Permanent Representative Office. A business is expected to make a profit. The tax bureau believes that a RO is expected to earn: Estimated taxable revenue (R) = (Total expenses + BT) + Deemed profit margin = Total expenses + R x 5% + R x 10% = Total expenses / (1 – 5% – 10%) = Total expenses / 0.85 Accordingly, the revenue is about 117% of the total expenses (not including BT). The mark-up rate is 10% of the taxable revenue but […]

If a Permanent Representative Office maintains the accounting books and business records (e.g. service agreements, vouchers and receipts) in China, these can be audited by a registered CPA firm to reasonably ascertain the income and profit amounts. The Permanent Representative Office may apply to the tax bureau to file the tax returns on the actual results basis. In practice, many Permanent Representative Offices do not maintain a full set of accounting records in China. In addition, many FEs do not enter into separate contracts or charge a separate service fee for the work done by their Permanent Representative Offices in China for the FE’s suppliers or customers. In such situations, the tax bureau prescribes the use of one of the following methods to estimate their taxable revenue and assessable profits for filing tax on a deemed results basis. Once the method is approved, it should be consistently applied. 4.1. Revenue-Based […]

If a Permanent Representative Office carries on any taxable activities in China, the income attributable to the taxable services performed in China will be subject to Enterprise Income Tax (EIT) and Business Tax (BT). EIT is imposed on the assessable profits. The prevailing tax rate is 33% (including 3% local income tax). This is reduced to 15% – generally the 3% local income tax waived – if the Permanent Representative Office is registered and operates in one of the five Special Economic Zones in China (Hainan, Shantou, Shenzhen, Xiamen and Zuhai). In addition, BT is levied at 5% on the taxable revenue. In general, a quarterly EIT return should be prepared. This should be based on the unaudited management / expenditure account of each quarter and be filed within 15 days. Within four months after the end of a tax year (i.e. calendar year), an annual EIT return – supported […]

2.1. Tax-exempt Activities As reiterated in Circular Guoshuifa No. (1996) 165 and elaborated in Circular Guoshuifa No. (1997) 002 issued by State Administration of Taxation (SAT), the scope of tax-exempt activities for a RO are limited. Where the head office is a manufacturer, the tax-exempt activities for its RO are: – market study – provision of commercial information – liaison and other preparatory and supplementary services rendered at nil consideration for the manufacture and sale of the head office’s own products (i.e. the goods manufactured by the head office) into China. Where the head office is a trader, the tax-exempt activities for its RO are: – market study – provision of commercial information – other preparatory and supplementary services rendered at nil consideration for sale of the head office’s own goods into China. Circular Guoshuifa No. (1997) 002 defines ‘sale of own goods’ as the trading activities that the head […]

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 […]