培训课程
Income Tax on Foreign Investment Enterprises (FElT) 5
7. SPECIAL FORM OF BUSINESS ENTITIES
7.1 Representative office
An overseas foreign company may set up a representative office to carry out liaison work for the parent office. Its activities may include:
Collecting market information to parent office
Setting up meetings and transferring price and technical information to the PRC
Assisting in making arrangement for visits by the foreigners
Coordinating among other related companies.
Any representative office that limit its activities to conduct market research, liaison work and other related services on behalf of the head office that sells self- manufactures products is exempted from income and business tax.
With regard to tax exemption, we should note that the representative office must be set up by the overseas manufacturing head office of the same legal entity, not any other subsidiaries There are three methods of determining the taxable income of a representative office:
Actual income. It applies to any representative office that is able to provide complete and accurate vouchers and documents of expenses and correctly compute taxable income, the income tax is at 30% + 3% (15% for SEZ) of the profits.
Deemed income. If it cannot provide the complete information, the tax authority may otherwise determine the income.
Expenses plus. It is a method used by the tax authority to determine the taxable profits by the expenses plus reasonable profits. The currently used reasonable profit rate is 10%. e.g.
The deemed income (A) == expenses / (1 - 10% profits rate - 5% business tax
rate)
Business Tax == (A) x 5%
Income tax = (A) x 10% x 33% (15% for SEZ)
@A representative office of a foreign enterprise was approved to be taxed under the expenses plus method. The total expenses in the year is RMB 0.73 million.
I
Calculate the deemed income of the foreign enterprise and calculate the taxable income:
The deemed income = RMB 730,000 ¡Â (1 - 10% - 5%) = RMB 858,824
Business tax = RMB 858,824 x 5% = RMB 42,941
Taxable income = RMB 858,824 x 10% = RMB 85,882
State income tax payable = RMB 85,882 x 30% 25,765
Local income tax payable RMB 85,882 x 3% = 2,576
7.1 Representative office
An overseas foreign company may set up a representative office to carry out liaison work for the parent office. Its activities may include:
Collecting market information to parent office
Setting up meetings and transferring price and technical information to the PRC
Assisting in making arrangement for visits by the foreigners
Coordinating among other related companies.
Any representative office that limit its activities to conduct market research, liaison work and other related services on behalf of the head office that sells self- manufactures products is exempted from income and business tax.
With regard to tax exemption, we should note that the representative office must be set up by the overseas manufacturing head office of the same legal entity, not any other subsidiaries There are three methods of determining the taxable income of a representative office:
Actual income. It applies to any representative office that is able to provide complete and accurate vouchers and documents of expenses and correctly compute taxable income, the income tax is at 30% + 3% (15% for SEZ) of the profits.
Deemed income. If it cannot provide the complete information, the tax authority may otherwise determine the income.
Expenses plus. It is a method used by the tax authority to determine the taxable profits by the expenses plus reasonable profits. The currently used reasonable profit rate is 10%. e.g.
The deemed income (A) == expenses / (1 - 10% profits rate - 5% business tax
rate)
Business Tax == (A) x 5%
Income tax = (A) x 10% x 33% (15% for SEZ)
@A representative office of a foreign enterprise was approved to be taxed under the expenses plus method. The total expenses in the year is RMB 0.73 million.
I
Calculate the deemed income of the foreign enterprise and calculate the taxable income:
The deemed income = RMB 730,000 ¡Â (1 - 10% - 5%) = RMB 858,824
Business tax = RMB 858,824 x 5% = RMB 42,941
Taxable income = RMB 858,824 x 10% = RMB 85,882
State income tax payable = RMB 85,882 x 30% 25,765
Local income tax payable RMB 85,882 x 3% = 2,576
