tax planning in china - representative offices

Tax Planning forSmall and Medium Sized Enterprises in China

Recent Tax Changes Concerning Representative Offices

Tax Changes Concerning Representative Offices

• Major changes include:– Application for Enterprise Income Tax (EIT) exemption

from ROs will no longer be accepted;– Existing tax exempted ROs will be cleared up;– Business tax will be paid on actual China source

income and profit tax will be paid on actual profit;– Cost plus method used for RO with inaccurate

revenue records;– Actual revenue/deemed profit method used for RO

without accurate expenses or cost records.

Tax Changes Concerning Representative Offices

• Major changes - continued:– The minimum deemed profit rate has been increased

to 15%;– 15% - 30% for construction, design, consulting

service;– 30% - 50% for management service;– No less than 15% for other services;– Minimum tax burden has been increased from 8.8%

to 10.9%.

Issues for Clarification

The following issues require further clarification from tax authorities:

• If the RO is used for preparatory and auxiliary purposes, will the RO is allowed to apply for tax exemption according to tax treaty?

• If so, how do you deem an RO to be for preparatory and auxiliary purposes?

• How do we define China source income when an RO is not supposed not to carry out any operation in China from legal standpoint?

• How will the tax officer determine the deemed profit rate?

• The business tax rate for legal entities is from 3% to 20%. Will the same rate apply to ROs?

Contact Us

NCO China

• tel:  +86 (10) 8447 8118• fax: +86 (10) 8447 9349• e-mail:  enquiry@ncochina.com• website: www.ncochina.com