Circular 18 (Guoshuifa [2010] 18)
Guoshuifa [2010] 18 – Notice of the State Administration of Taxation on Issuing ‘Interim Implementing Measures Regarding Tax Management on the Permanent Representative Office of Foreign Enterprises’
Interim Implementing Measures Regarding tax management on the permanent represenative office of foreign enterprises
Article 1: The present Interim Implementing Measures are formulated to regulate tax levying of the permanent representative office of foreign enterprises, in accordance with the law of People’s Republic of China on the Administration of Tax Collection (“LATE”), the Implementation of the LATE , the Enterprises Income Tax Law of the people’s Republic of China (“EIT”) , the Implementation of the EIT, the Provisional Regulations of the People’s Republic of China on Business Tax, the Implementation of the Regulations, Provisional Regulations of the People’s Republic of China on Value-added Tax, the Implementation of the Regulations.
Article 2: The term ‘permanent representative office of foreign enterprises’ refers to permanent representative office of the foreign-funded enterprise(include Hong Kong, Macau, Taiwan) that is established inside China under the regulations of the State Council and authorized by Administration Bureau for Industry and Commerce(hereafter the representative office).
Article 3: Representative office shall apply and pay the enterprise income tax on its incomes, and apply and pay business tax and value-added tax on its taxable incomes.
Article 4: Representative office shall, with 30 days after the receipt of the business license(or authorization by the goverment),apply for the tax registration with the following documents:
a) Business license or authorized documents original and copy
b) Organization code certificate original and copy
c) Documents proving registered and operating addresses (certificate of title or leasing agreements/leases) original and copy. If the registered address are owned, the applicant shall provide the certificate of title or sales contract. If the address is leased, the applicant shall provide the leasing contract.
d) CEO or principal’s passport or identity card original and copy
e) Foreign enterprise’s relevant documents on establishing the representative office, and foreign enterprise’s other represenative office established in China(include the name, address, contact information, CEO)
f) Other materials requested by the tax authority
Article 5: When a change occurs in the contents of tax registration of the representative office, or in advance of termination of the business, the representative office shall apply for a change or cancellation of tax registration in accordance with the Law of People’s Republic of China Concerning the Administration of Tax Collection; before the cancellation of registration, the representative office shall apply and pay income tax on settlement incomes.
Article 6: The representative office shall settle accounting books in accordance with relevant laws and regulations, check and account in accordance with supporting official tax receipts, calculate taxable income in accordance with actual performance function and business risk, and apply and pay income tax and business tax within 15 days of the quarter ending. Meanwhile, the representative office apply and pay Value-added Tax in accordance with Provisional Regulations of the People’s Republic of China on Value-added Tax.
Article 7: When the accounting books required by the laws to be established have not been established, or the accounting books have been established but are not intact, and the cost and income cannot be checked accurately, than the representative office cannot apply and pay income tax in accordance with the article 6, the tax authority shall have the right to assess the amount of taxes payable through the following two methods:
I. Calculating incomes in the basis of appropriation expenditure: it is applicable to those representative offices that can calculate appropriation expenditure accurately but not cost and income.
a. Calculation formula:
Amount of incomes = appropriation expenditure of current period/(1-assessed profit rate-business tax rate)
Amount of payable taxes = amount of incomes x assessed profit rate*enterprise income tax rate.
b. Appropriation expenditure of representative office includes: the salary, bonus, allowance, welfare, goods purchase fees (include cars, office equipment etc.fix assets), communication expense, travel fees, house rent, equipment rent, transportation fares, entertainment expenses, other charges paid to staff both inside and outside the territory of China
(i) The expenses for purchasing fixed assets, and decorating expenses for the representative office’s establishment or removal, shall be recorded wholly into appropriation expenditure, when it occurs , for calculating.
(ii) Interest income can not be deducted from appropriation expenditure; entertainment expenses incurred shall be recorded into appropriation expenditure.
(iii) The expenditure of public welfare donations to China, overdue payment, fines, and the disbursements for head office but not related to its’ own business, in form of currency, shall not be recorded into the appropriation expenditure.
(iv) Other expenses: the expenses for purchasing samples and transportation from China territory for head office; the expenses for warehousing and customs declaration of samples from other countries into China; the payment of interpreter for head office staff interviewing China.
II. Assessing the amount of taxable incomes in basis of amount of incomes: it is applicable to those representative office that can calculate income accurately but not costs and expenditures.
Calculation formula: Amount of payable taxes = amount of incomes x assessable profit rate x enterprise income tax rate.
Article 8: The assessable profit rate shall not be less than 15%. Where the assessing collection method applies to a representative office, if it can establish intact accounting books and calculate the taxable incomes and payable taxes accurately, it shall make a relevant declaration after notifying the tax authority.
Article 9: When value-added tax and business tax taxable activities occurs, the representative office shall pay value-added tax and business tax in accordance with relevant laws and regulations.
Article 10: A Representative Office that wants to enjoy tax treaty benefits, should conduct in accordance with tax treaty, and ‘Notice of the State Administration of Taxation on Issuing Administrative Measures on Non-residents enjoying Tax Treaty Benefits’ (Guoshuifa [2009] 124), and apply for tax declaration in accordance with the time limit in article 6.
Article 11: This regulation shall come into force as of 1 January 2010. The Notice of the State Administration of taxation on strengthen administration of collection on foreign-funded enterprise representative office(Guoshuifa[1996]165), the Notice of the State Administration of taxation on relevant administration of collection on foreign-funded enterprise representative office (Guoshuifa [2003] 28), and the Notice of the State Administration of taxation on tax exemption approval procedure of representative office established by foreign government and enterprises (Guoshuihan [2008] 945) shall be repealed simultaneously. All local governments shall no longer accept application for tax exemption approval from representative office, and liquidate the representative office whose tax exemption has been approved in accordance with this regulation.
Article 12: The Local Tax Bureau in all provinces, municipalities, and municipalities with independent planning status may establish specific rules in accordance with this regulations, and put on file to the State Administration of Taxation.
All translations on this site are provided courtesy of Hwuason Lawyers.
[...] the last few weeks I have given some thought about Circular 18 and whether I think the changes are appropriate or not. I have now decided that I am not a fan of [...]