China - Tax and Accounting Regulations
A coherent offshore tax planning strategy is essential to maximize the effectiveness of offshore companies. Eltoma can assist by structuring the most tax efficient strategy to satisfy your requirements. Eltoma will guide you as to which jurisdictions offer the best tax structure by identifying the types of tax payable as well as applicable exemptions and incentives. Eltoma will provide tax planning advice that will identify which is the most favourable tax efficient jurisdiction in which to incorporate.
The tax system in China has undergone massive changes in recent years and the Chinese Government is expected to make even more changes during 2010. Keeping up to date with compliancy in such a dynamic environment is highly challenging.
Below is a summary of the main taxes to be considered although this is just an basic overview. For a detailed information package regarding tax and accounting regulations in China please contact Eltoma and we can provide the appropriate information for your situation.
There are 2 main taxes for WFOE and Joint Venture Companies in China:
- Turnover Tax (this includes Business Tax and VAT etc)
- Business Tax: Based on Turnover Tax the rate of 5-6% applies to the service orientated business.
VAT Tax:
- Based on the value added part of the products and applied to trading and manufacturing businesses. The rate is around 17%
Income Tax (Corporate Income Tax, Individual Income Tax etc)
- Corporate Income Tax – based on gross profit. Stands at approximately 25% nationwide.
- In the Special Economic Zone high technology business are entitled to tax incentives.
- As of January 1st 2009 industries in middle-western China can now qualify for tax incentives.
Dividend Tax:
- Currently stands around 20%. The rate however is much lower under the DTA signed between China and other countries such as Hong Kong.
Representative Office Tax:
- This tax rate is based on expenses and not profit since it is prohibited for Representative Offices to undertake business activities which generate income. From March 2010 the rate is approximately 11%.
Enterprise Income Tax:
- This is 33% although the rate can be reduced to between 15-24% dependent on the location of the business
Profit Repatriation:
- WFOE – After tax clearance the profit is allowed to remit out of the country but prior approval from the State Administration of Foreign Exchange is require. Repatriation of the Registered Capital is forbidden during the agreed business term.
International Aspects of Taxation:
- Double Taxation Treaty - China provides numerous preferential treatments with regards to foreign taxation and has concluded tax treaties with more than 60 countries including; the UK, the USA, France, Australia, Cyprus, the Netherlands, Singapore, Germany, the UAE, Australia and New Zealand amongst others.
Annual Reporting Requirements:
- Any limited company in China is required to submit an annual audit report to the relevant authorities and an annual examination is required.
- WFOE - A monthly tax report is required to be submitted to the relevant tax authorities and within 3 months of the end of each calendar year the WFOE must undergo an annual inspection prior to which a local accounting firm must have conducted an audit.
- Representative Office - A quarterly tax report is required to be submitted to the relevant tax authorities