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 by the audited financial statements or expenditure accounts for the year – should be filed for the reconciliation and finalisation of the tax liabilities for the year.
For BT, strictly speaking, a monthly return should be filed within 10 days of the end of each month. In practice, many tax bureaus allow the filing of BT returns of a RO on a quarterly basis. However, the taxpayer should check the prevailing local practice. In addition, tax bureaus in some locations also require the filing of the annual BT return for each year.
The Detailed Rules for Implementation of the Tax Collection and Administration Law of China states: when a taxpayer has been approved for tax exemption, the tax returns prepared on a nil taxable income basis should still be filed with the tax bureau in a timely fashion.
In addition to EIT and BT, the management of a Permanent Representative Office should also pay attention to:
– the import Customs Duty and import taxes (i.e. Value Added Tax and Consumption Tax) on the importation of commodities into China
– Stamp Duty payable on the taxable documents in China
– the Individual Income Tax withholding and filing requirements in respect of the individuals working for the Permanent Representative Office.