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LehmanBrown
opens new office in Tianjin!
Please
contact our new Tianjin
office:
tianjin@lehmanbrown.com
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Room
620, North Technology Exchange
Market No. 248 Baidi Road
Tianjin 300192
China
Tel: +86
22 8789 0247
Fax: +86
22 8789 3254 |
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New Tax Administration Rules
for Representative Offices A
new tax notice concerning the taxation of representative offices
(ROs) established by foreign entities came into effect this
week. In China most ROs are not permitted to record income or
perform true business activities, even though such offices are
still subject to taxation, causing some considerable concern
to foreign companies. The new notice is designed to clarify
and standardise previous measures aimed at ROs and at the same
time to ease their tax treatment.
The notice encourages ROs to file their tax
returns and activity reports based upon their actual business
activities in China. The tax base varies according to industry
as follows:
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ROs with a head office engaged in business
advisory, tax advisory, law, accounting, auditing or other
types of consulting services are required to maintain complete
accounting records and evidence of properly calculated revenue
and taxable income. Their tax liabilities will be based
on actual revenue and profit.
- ROs of entities that engage in agency or trading activities
perform business activities on behalf of the head office.
Since such ROs do not enter into agreements with their customers
directly and since income attributable is normally collected
by the head office, revenue of these ROs is determined on
a cost-plus basis.
- Any RO that does not fall into the above two categories,
but still carries out taxable activities, will be taxed
according to the actual revenue generated, including amounts
received by head offices outside of China and attributable
to the RO. If no revenue is generated then annual activity
reports must be filed with the tax bureau within one month
of the year-end.
- A tax exemption is still available for ROs established
by foreign governments and international, non-profit and
non-governmental organisations. Any application for exemption
should be filed with the RO's local tax bureau and include
documents providing evidence of the nature of the RO issued
by the tax authorities of the RO's head office. Application
is subject to final approval by the State Administration
of Taxation.
It is likely that the new measures will not represent any ease
in tax authorities control of ROs and there also concern that
thorough tax-audits will become more common, particularly for
those ROs that report zero revenue.
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Tax Treatment of FIEs with Less
than 25% Foreign Investment
In order to further clarify previous regulations,
a circular was recently issued jointly by MOFTEC and the State
Administration of Taxation to clarify issues relating to the
tax treatment of newly-established enterprises with foreign
investment with actual capital contributions by foreign investors
lower then 25%.
Such enterprises are not eligible to enjoy
the various privileged tax policies normally available to FIEs.
The applicable tax system is the same as that to domestic enterprises.
The same applies to tax registration procedures
for such enterprises with the procedures also following that
of local companies.
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New
Rules on Deductible VAT Input
A measure newly introduced by the State Administration
of Taxation of interest to general VAT payers became effective
in March this year. All VAT input official receipts, which were
issued by the fake-proof VAT parameters, should be reported
to local tax authority for approval within 90 days after the
receipts were issued. Otherwise, the VAT input cannot be deducted.
VAT payers who want to claim their VAT input
for invoices dated before March 1 2003 have until the end of
September this year to do so at their local tax bureau.
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New
Measures for Evalution of Royalties of Imported Goods
Effective from July, the Customs General Administration
of the PRC recently provided measures regarding the evaluation
of royalties of imported goods.
Royalties in these measures are referred to
as fees paid by the buyer of the imported goods in order to
get the permission to use the patent, copyright, trademark,
know-how, right to distribute and sell, and other rights.
The main points of the measures:
- Royalties paid by buyers should be included in the dutiable
transaction value if the royalties are related to the imported
goods and a condition of the export sale of the goods to
the PRC. If the buyer fails to pay the royalty, then the
imported goods would not be traded according to the stipulated
contract.
- The imported goods with the royalty included in the duty-paid
price will be taxed accordingly.
- The customs office will evaluate the royalties, as well
as determine the duty-price of the imported goods.
- If any consignee of the imported goods fails to report
the royalties, or make any false report, they will be subjected
to legal liabilities in accordance with the Customs Law.
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Latest
Measures to Combat Financial Impact of SARS
The Chinese government has issued a number
of measures aimed at minimising the financial impact of SARS
on certain industries, most importantly the hospitality and
service industries, transportation and tourism. Opinions about
the actual economic impact of SARS upon the Chinese economy
vary though it's estimated indirect economic losses could total
more than RMB 200 billion.
For the period 1 May 2003 to September 2003
the central government has exempted passenger transport and
tourism business from paying business tax, urban maintenance
and construction tax and education surtax.
In addition, several local governments, including
Shanghai, Shenzhen and Hangzhou, have granted similar tax concessions
to alleviate the impact of SARS on hotels and restaurants. Many
hotels are already facing difficulties as a result of a dramatic
fall in the number of customers during the SARS period.
In Shanghai, the city government has provided
loan guarantees on the short-term operating capital loans of
those SMEs in the tourist, entertainment and hospitality industry.
In a move designed not only to limit the economic impact of
SARS but also to further encourage improved hygiene municipal
governments in Guangzhou and Hangzhou waived fees for hygiene
supervision, disinfection and in some areas lowered the fee
for running water by 50%.
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Wholly-Foreign
Owned Travel Agents Allowed from July
According to the Provisional Regulations on
the Establishment of Travel Agencies Controlled or Wholly
Owned by Foreign Entities jointly issued by the National
Tourism Administration and the Ministry of Commerce, the first
wholly foreign-owned travel agencies can apply in July for approval
to operate.
Under the new regulations, foreign-owned and joint venture travel
agencies must be members of the China (Regional) Travel Industry
Association with annual turnover of US$500 million and US$40
million respectively. In addition to compliance with China's
tourism development plan and market needs, these travel agencies
must also have a minimum registered capital of RMB4 million.
The new rules also impose restrictions on the business scope
of these operations. For example, they are not permitted to
organise tours for Chinese mainland citizens to foreign countries
or to Hong Kong, Macau or Taiwan.
Qualified foreign investors are allowed to set up travel agencies
in State Council-approved national holiday resorts and in the
five cities of Beijing, Shanghai, Guangzhou, Shenzhen and Xian.
However, each foreign investor can only set up one majority-owned
or wholly-owned travel agency in China.
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Overseas
Brands Less Popular
According to a survey in the newspaper Shanghai
Morning Post, foreign brands are less influential in Shanghai,
as locals don't have blind faith in foreign products.
Less than 5 percent of the best-selling brands in the city are
foreign ones, indicated the survey, which was conducted by the
Shanghai Commercial Information Center on some one hundred products
in eight categories at more than 100 retailers and 3,000-plus
commercial outlets.
This is in contrast to the expectation by some industry analysts
that more foreign products would be purchased in China as import
tariffs declined after China's entry into the World Trade Organization.
From last year, the average tariffs on imported products have
dropped from 15.3 percent to 12 percent. About 5,300 products
were involved in the tariff reduction, accounting for 73 percent
of total imported products.
Although the tariff cuts have had little effect on consumption
overall, they have fueled sales in imported automobiles and
information technology products.
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Taxation Terms
"Zeng Zhi Shui"
(Value Added
Tax)
"Ying Ye Shui"
(Business Tax)
"Xiao Fei Shui"
(Consumption Tax)
"Suo De Shui"
(Income Tax) |
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