But then that’s why we tragics have blogs like this!

I am indeed a tax tragic. I dont really expect the media to report tax issues but if they do I would expect them to write about the significant issues. The tendency is that relatively meaningless tax reforms are reported by the mainstream media whereas the more significant changes are ignored.

The Western media has pretty average China coverage on tax or pretty much any other issue. You have to do a lot of sorting to get through the dreary & sensationalist and discover something worthwhile. Tax coverage is not alone in suffering from poor coverage.

The Rep Office issue is genuinely interesting – what better way to slug marginal players among foreign companies, particularly as most Rep Offices generate revenue for their overseas HQ (almost impossible for the tax authorities here to calculate the contribution) and pay tax on the basis of underdeclared expenditure?

Again, it’s all a sign that China is getting tougher and taxation looking more and more like Australia and other advanced economies.

What particular tax issues are you interested in with respect to Chongming Island?

Matthew

Do you have any information about taxation in Chongming Island?

Thank you,

Rather, both the old and new regulations deem, in certain circumstances where the actual method is not applied, the RO to have a specified profit (at least 15% under the new regs and it was generally 10% under the old) which is based upon the ROs expense or, at least according to the new regulation, income level. That deemed profit is then subject to tax at the prevailing rate (25%). The reason why lawyers have been accustomed to saying ROs are taxed at 10% of expenses is that when you take into account business tax and enterprise income tax, the tax payable is roughly 10% of the ROs expenses. Whilst the substance may be the same, it leads to confusion to simply say that ROs are taxed on expenses.

The analysis, in my view, also ignores the literal wording of the new regulation – which states that the actual method will be used unless the RO is unable to clearly account for either its income and expenses. It may be that further regulations or practice differ from this similarly with the previous regime. However, I am not prepared to assume that at this stage.

BTW nice name. Any relation to the classical musician?

Thanks very much for the positive comments. Yes the demise of ROs is something that I have been commenting on for a few months. Certainly closing one down is never easy from a tax perspective. However, sometimes you just need to bite the bullet. Problems generally dont go away in my experience.

Any praise for translations should go to my team at Hwuason. Unfortunately, my Chinese is not at that level despite the small fortune I have spent on lessons over the years.

Terrific work in turning out your analysis so quickly. Good translation too.

This Circular reflects increasing concern over the activities of Representative Offices across the whole of government.

Earlier in the year, the State Admininstration of Industry and Commerce (SAIC) introduced new regulations for Rep Office establishment:

See: (Chinese) http://wzj.saic.gov.cn/pub/ShowContent.asp?CH=ZCFG&ID=329&myRandom=.36104067434913

See: (English): http://www.china-briefing.com/news/2010/01/20/new-regulations-for-establishing-representative-offices-released.html

Indeed, it appears the era of the Rep Office is over and they are no longer a useful vehicle for entry into the China market.

Now the issue is how do we shut them down and convert to WFOE’s without a major tax headache!

Cheers,

Matthew