Taxation of Representative Offices in China (1) – Introduction

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 for proper business registration – the China-source service income will be subject to Corporate Income Tax and Turnover Tax in China. If the Permanent Representative Office only performs tax-exempt activities on behalf of its head office, neither of these taxes will be imposed. If the services are performed in China, the income is usually regarded as having a source in China – regardless of who the payer is, where the payer resides, or what the currency is.

Income Tax on Enterprises with Foreign Investment and Foreign Enterprises