Viewpoints

Value-added Tax Rate IN CHINA Effective from April 1,2019 For the different taxable items of China’s value-added tax (VAT) and different types of taxpayers, we classify the VAT rate into the following four categories and list the taxable items of the four categories and the corresponding tax rates respectively. 1. VAT rate applicable to VAT general taxpayers for sales or import of goods, sales of taxable services. 2. VAT rate applicable to all taxpayers for export of goods, services or intangible assets. 3. VAT deducted rate applicable to VAT general taxpayers for purchase of agricultural products. 4. VAT leviable rate applicable to small-scale taxpayers or VAT general taxpayers who allowed to use the simple tax computation method. Category Taxpayer Taxable Items Tax Rate / Leviable Rate / Deduction Rate 1 VAT general taxpayers Sales or import of goods, sales of taxable services Trading/import or export, traffic and transit services, postal […]

The principal forms of business entities available to foreign investors in Shanghai are:- (1) Foreign Investment Enterprises (a) Equity Joint Venture (EJV) (b) Cooperative Joint Venture (CJV) (c) Wholly Owned Foreign Enterprise (WOFE) (2) Foreign Enterprises (a) Representative office (RO) (b) Branches of Foreign Enterprise (c) Enterprises other than those listed above that have establishments or places of business in China and engage in production or business operations, e.g. factory, places for exploitation of natural resources, contracted project sites. Laws and Regulations Relating to Formation of Business Entities When choosing among different forms of business entities, it should be noted that not all types of entities are available for all kinds of industries. The formation, organization, management of most of these entities are governed by their respective laws and regulations, which are special laws relating to the particular form of business entities in question. In 1994, the first company law […]

The Regulations of Beijing Municipality on the Confirming of the New-Technology Enterprises Beijing Municipal Science and Technology Commission (December 1998) 1. These regulations are formulated for the purpose of promoting the development of high- and new-technology industries in and strengthening the confirming of new-technology enterprises in Beijing Municipality in accordance with No. 47 Document (1988) of the People¡¦s Government of Beijing Municipality and the relevant regulations issued by the Ministry of Science and Technology (originally called the State Science and Technology Commission). 2. These regulations are applicable to all the new-technology enterprises set up in the administrative territory of Beijing Municipality. 3. The Beijing Municipal Science and Technology Commission (BMSTC) is the department of the People¡¦s Government of Beijing Municipality taking charge of the examination and approval of new-technology enterprises as well as implementation of these regulations. 4. The scope of new technologies and the products thereof are as follows […]

Document No (24) 2011 Issued by Division of Planning & Wages Shanghai Municipal Labour & Social Security Bureau, 22 March 2011 To all the Municipal Commissions, offices, Bureaus, Holding (Group) Corporations, Administrative State-Owned Enterprises, the District/County Labour & Social Security Bureaus, the Employing Units: With the approval of Shanghai Municipal Government, the minimum wages in the Shanghai City will be adjusted on 1 April 2011. Notice regarding some of the relevant issues is hereby given: – 1. The monthly minimum wage of workers in the Municipality is adjusted from RMB1,120 to RMB1,280. While the following items are not included within the minimum wage and shall be paid in addition by the enterprises according to relevant laws and regulations: (1) Contributions for Social Insurances and Public Housing Fund by the individual workers themselves; (2) Overtime pay; (3) Allowances for mid-shift, night shift, work in extreme temperatures, in mine or exposure to […]

(Applicable to Wholly Foreign Owned Enterprise, Sino-Foreign Equity Joint Venture and Cooperative Joint Venture and other types of foreign invested enterprises) Conditions for Termination In line with Chinese law, a foreign-funded enterprise shall be terminated where any of the following conditions occurs: 1. That the term of operation expires; 2. That the investors have decided to dissolve the enterprise because of poor operation and serious losses; 3. That the enterprise cannot continue to operate because one of the partners has failed to fulfil its obligations defined by the contract and charter of incorporation; 4. That the enterprise cannot continue to operate because of serious losses resulting from factors of force majeure such as natural disasters and war; 5. That the enterprise has become insolvent; 6. That the enterprise has been dissolved for violation of law or harming public interests; 7. That there have occurred other reasons to dissolve the enterprise […]

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 […]