![Taxation of Rep. Offices
A B C D E F G H
Operations Presumed Business CIT Tax Income Business CIT Total Tax
Expenses Profit Rate Tax Rate Rate Amount Tax Payable Payable
Payable
A/(1-B-C) ExC ExBxD F+G
8,000 15% 5% 25% 10,000 500 375 875
Formulas:
Presumed Income Amount = Operations Expense / [1 Pres. Profit Rate 15% Business Tax Rate]
Business Tax Payable = Income Amount x Business Tax Rate 5%
Corp. Tax Payable = Income Amount x Presumed Profit Rate 15% x Corp. Tax Rate 25%
For Most Rep. Office the Effective Tax Rate will be 10.9%
The JLJ Group All Rights Reserved - July 22, 2010 9](https://image.slidesharecdn.com/prctaxes2011-13201335352912-phpapp01-111101024938-phpapp01/85/China-Taxes-2011-9-320.jpg)
![PERSONAL INCOME TAX
Full tax amount deducted from employees salary
Employer submits the amount to tax bureau
For Local Employees
IIT = [Gross Salary Social Benefits 3,500 RMB] x Tax Rate Quick
Deduction
For Foreigners liable to tax contributions
IIT = [Gross Salary Allowances 4,800 RMB] x Tax Rate Quick
Deduction
Reasonable Allowances (for Tax Exemption)
Housing, Meals and Laundry
One-off Relocation costs
Business trip both inside and outside of PRC
Expatriates language training, Childrens education
Home leave for expatriate
Employer Must Pay IIT On Behalf of Employees](https://image.slidesharecdn.com/prctaxes2011-13201335352912-phpapp01-111101024938-phpapp01/85/China-Taxes-2011-14-320.jpg)
China Taxes 2011
- 1. PRC Taxes Solutions for China Entry & Growth
- 2. Investment Vehicle Options Option 1 Option 2 Buffer between Parent Parent Parent and China Co Co Operations Tax Optimization / Profit Repatriation Future sale or investment/ restructuring Hold Co simplified Modern legal structure and Overseas Overseas mature rule of law PRC PRC WFOE WFOE The JLJ Group All Rights Reserved - July 22, 2010 2
- 3. Investment Vehicle Options II Substance Over Form Option 2 Effective Management Rule: If State Administration Parent of Taxation (SAT) deems the offshore companys day to Co day management occurs within Mainland China, the offshore company may be subject to corporate income tax in Mainland China Reduced Tax Rate Exclusions: Offshore holding companies with no substantive business activities may not qualify for reduced withholding tax rates as per tax Hold Co treaties between the jurisdiction it is located and Mainland China Overseas Indirect Transfer of Assets: an investor that has structured its equity interest in a Mainland China PRC enterprise through an offshore holding company could be subject to an additional tax burden within China, in the event that the investor sells interests in the offshore company WFOE Dont Forget to Consider Benefits Between the Hold Co and the Parent Company The JLJ Group All Rights Reserved - July 22, 2010 3
- 4. Withholding Tax on Dividends Tax Treatment Countries Notes Applicable for investments of 0% Georgia 50% with a total investment of EUR200 million Kuwait, Mongolia, Mauritius, Slovenia, Jamaica, Yugoslavia, Sudan, Laos, South Africa, Croatia, 5% Macedonia, Seychelles, Barbados, Oman, Bahrain, Saudi Arabia Luxemburg, Korea, Ukraine, Armenia, Iceland, Must hold at least 25% of the 5% Lithuania, Latvia, Estonia, Ireland, Moldova, Cuba, investment Trinidad and Tobago, Hong Kong, Singapore Must hold at least 25% of the 7% Austria investment 8% Egypt, Tunis, Mexico 10% Most other Countries The JLJ Group All Rights Reserved - July 22, 2010 4
- 5. Hong Kong Holding Company Tax rate: 16.5% income tax No VAT, Capital Gains, or Sales tax No withholding tax on dividends and interest Low country risk and strong rule of law Ease of disposal, acquisition and restructuring Jurisdiction FDI 2009 (Billion) Hong Kong US$54 Taiwan 6.6 Japan 4.1 Singapore 3.9 United States 3.6 The #1 source of FDI for China (32% YOY Growth) The JLJ Group All Rights Reserved - July 22, 2010 5
- 6. Tax Categories Category Description Corporate Income Tax (CIT) Applies to income derived from production, business operations, etc. Turnover tax on revenue from professional services provided, transfer of Business Tax (BT) intangible assets, sales of immovable properties. Tax rate varies according to type of industry. Value-Added Tax (VAT) Customs Duty/Tariffs Trade related taxes. Consumption Tax 5% to 20% tax applying to income derived by a non-resident enterprise. Eg. interest receipts, dividends, rentals received, royalties, capital gains, etc. Withholding Tax Reduced rates available in countries with tax treaties signed, eg. Hong Kong, Singapore, Mauritius, Barbados, etc Stamp Duty Real Estate Tax Other Taxes Vehicle Tax Surcharges: Education (3%), River maintenance (1% Shanghai Only), and City Construction (7%) The JLJ Group All Rights Reserved - July 22, 2010 6
- 7. Tax Compliance Timeline Rep. Office LLC Tax Registration Within 30 Day after License Issuance Corporate Income Tax (CIT) Quarterly Quarterly Business Tax (BT) Quarterly Monthly VAT & Consumption Tax N/A Monthly Annual Audit & Tax Clearance End of May Annual Examination End of June The JLJ Group All Rights Reserved - July 22, 2010 7
- 8. Rep. Office Restrictions Prior to January 2010 New RO Current RO May maintain current Foreign No Limit No more than 4 allowed Representatives but not Representatives additional Reps. Effective Tax Rate 8.8% ~10.9% ~10.9% Annual examination Renewal upon current Duration of entity 3 years required license expiration Registration COI + Bank Statement COI Authenticated N/A Complexity Authenticated Renewal N/A COI Authenticated COI Authenticated Complexity Parent Company Must be a legal entity in Must exist for at least 2 N/A Qualification home country years in home country The JLJ Group All Rights Reserved - July 22, 2010 8
- 9. Taxation of Rep. Offices A B C D E F G H Operations Presumed Business CIT Tax Income Business CIT Total Tax Expenses Profit Rate Tax Rate Rate Amount Tax Payable Payable Payable A/(1-B-C) ExC ExBxD F+G 8,000 15% 5% 25% 10,000 500 375 875 Formulas: Presumed Income Amount = Operations Expense / [1 Pres. Profit Rate 15% Business Tax Rate] Business Tax Payable = Income Amount x Business Tax Rate 5% Corp. Tax Payable = Income Amount x Presumed Profit Rate 15% x Corp. Tax Rate 25% For Most Rep. Office the Effective Tax Rate will be 10.9% The JLJ Group All Rights Reserved - July 22, 2010 9
- 10. Business Tax Revenue Source Tax Rate Communications & Transportations Professional Services Construction 3% Posts & Telecommunications Culture & Sports Finance & Insurance Hotels & Travel Agencies 5% Restaurants Consulting Entertainment Related Businesses 5% to 20% Transfer of intangible assets 5% Sales of immovable property 5% Tax Payable = Business Turnover x Applicable Tax Rate The JLJ Group All Rights Reserved - July 22, 2010 10
- 11. Value-Added Tax Regular Rate: 17% General Taxpayer This category includes special goods such as certain staples, books and publications, certain gases and Preferential agricultural goods and domestic Rate: 7 to 13% logistics Companies with revenues exceeding RMB 500k (production, service) or RMB 800k (wholesale, retail) Small-Scale Unified Rate: Taxpayer 3% GTP Tax Payable = Current Output VAT Current Input VAT The JLJ Group All Rights Reserved - July 22, 2010 11
- 12. Incentive Programs 2009 economic downturn spurred many local governments to provide additional incentives for establishing your FIE within their jurisdiction Recognizing encouraged statuses before official approval Reduced rates for local portion of tax 2/3 Tax Holidays Reduced fees for land-use rights Subsidized rentals and expat housing Local incentive programs, once secured, may be tenuous at best Special Incentives should not be the only priority in choosing a location The JLJ Group All Rights Reserved - July 22, 2010 12
- 13. Preferential Tax Treatment Industries / Projects Tax Rate High-Tech, New-Tech, Clean-Tech Enterprises 15% CIT Small-scale Enterprises with low profitability 20% CIT Income Derived from Certain Industries Agriculture, forestry, animal husbandry or fishery projects Tax Exemption Investment in or operation of certain public or Reduction infrastructure projects 3+3 Tax Holidays Qualified environmental protection and conservation projects Technology transfer projects Enterprises located within certain ethnic autonomous Tax Exemption regions (subject to approval from the Peoples government of the relevant regions) or Reduction Encouraging High-tech, New-tech, Clean-Tech and Offshore Outsourcing services The JLJ Group All Rights Reserved - July 22, 2010 13
- 14. PERSONAL INCOME TAX Full tax amount deducted from employees salary Employer submits the amount to tax bureau For Local Employees IIT = [Gross Salary Social Benefits 3,500 RMB] x Tax Rate Quick Deduction For Foreigners liable to tax contributions IIT = [Gross Salary Allowances 4,800 RMB] x Tax Rate Quick Deduction Reasonable Allowances (for Tax Exemption) Housing, Meals and Laundry One-off Relocation costs Business trip both inside and outside of PRC Expatriates language training, Childrens education Home leave for expatriate Employer Must Pay IIT On Behalf of Employees
- 15. PERSONAL INCOME TAX Current IIT Regime New IIT Regime (Sept. 1st 2011) Tax Quick Tax Quick Taxable Amount Taxable Amount Rate Deduction Rate Deduction Less than 500 5% 0 Less than 1,500 3% 0 501 2,000 10% 25 1,501 4,500 10% 105 2,001 5000 15% 125 4,501 9,000 20% 555 5,001 20,000 20% 375 9,001 35,000 25% 1,005 20,001 40,000 25% 1,375 35,001 55,000 30% 2,755 40,001 60,000 30% 3,375 55,001 80,000 35% 5,505 60,001 80,000 35% 6,375 Over 80,000 45% 5,505 80,001 100,000 40% 10,375 Over 100,000 45% 15,375 Employees with a salary of 38,600 will see an increase in taxes
- 16. General Tax Rule for Foreign Employees Criterion used to determine a foreign employee tax liability in China is the duration of stay and the employees position. Foreign employees who have resided in China for 5 years are taxed on their worldwide income