Hwuason Seminar Series
The End for Representative Offices?
On 20 February 2010 the State Administration of Taxation issued Circular 18/2010 outlining a new tax treatment for representative offices (ROs) of foreign enterprises in China.
Circular 18/2010 replaces several older circulars relating to the taxation of ROs and introduces significant changes. The new circular represents a fundamental shift in tax liability for ROs in China and all foreign companies with ROs should determine how it affects them. Hwuason’s tax lawyers will outline the changes and illustrate how they will impact upon the bottom line
Issues covered will include:
1. Previous tax treatment of ROs;
2. An outline of Circular 18 and its practical implications; and
3. Moving from a RO to a corporate structure.
For those unable to attend the seminar but who would like more information in relation to this latest development, please do not hesitate to contact us.
Date: Wednesday, 21 April 2010
Time: 2pm to 3pm
Location: Hwuason Boardroom, Suite 1505, Tower B, Jianwai SOHO, No 39, East 3rd Ring Road,
Chaoyang District, Beijing
Hwuason is the first law firm in China specialized in taxation law. Hwuason has extensive experience in tax planning, corporate finance, foreign investment, M&A and tax related litigation.
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On 20 February 2010, State Administration of Taxation issued Guoshuifa  18 entitled “Notice of the State Administration of Taxation on Issuing ‘Tentative Measures Regarding Administration of Taxation on Representative Offices of Foreign Enterprises’ ” (Circular 18), updating China’s tax policies with respect to representative office (ROs). Circular 18 abolishes all previous circulars with respect to the taxation of ROs. Circular 18 applies retroactively as from 1 January 2010. The key points of Circular 18 are as follows:
1. The scope of taxpayer: All ROs in China shall apply and pay the enterprise income tax (EIT) on the profits attributable to the ROs , only except some ROs which shall apply for EIT exemption in according with relevant tax treaty.
2. The type of taxes: ROs in China shall submit EIT, as well as Business Tax (BT) and Valued Added Tax (VAT).
3. The method of tax filing:
(i) The methods of filing EIT of ROs in China are no longer determined based on the principal business of the head office, but on the profits actually attributable to RO itself.
(ii) ROs shall settle accounting books and record based on official and valid vouchers, calculate its taxable turnover and profits based on actual performed functions and business risks (the “actual method”), and submit EIT and BT within 15 days after the quarter ending, meanwhile, submit VAT based on deadline in Provisional Regulations of the PRC on VAT.
(iii) If the accounting records required by the laws are not intact, or the cost and income cannot be verified with reasonable certainly, the RO cannot use the actual method. In such case, the tax authority shall have the right to determine the amount of taxes payable through the following two methods (deemed profit methods):
(a) Expense method: calculating taxable incomes based on appropriation expense, it is applicable to an RO which can provide accurate details of business expenses but cannot accurately substantiate its turnover or cost.
(b) Income method: calculating taxable income based on the gross income of the RO. This is applicable to an RO which can provide accurate gross income information but cannot provide cost and expense details.
(iv) ROs shall calculate and submit VAT and BT in accordance with relevant laws and regulations
(v) Deemed profit rate: If the deemed profit method is used, the deemed profit rate shall not be less than 15%, an increase from the old 10%.
4. Tax exemption application:
(i) The methods of tax exemption application of ROs in China is no longer determined based on the principal business of the head office, but on the applicable tax treaty and Guoshuifa  124 entitled “Notice of the State Administration of Taxation on Issuing ‘Administrative Measues on the Application for Preferential Treatment under a Tax Treaty by Nonresident’”
(ii) Local tax authorities shall no longer accept application from ROs for tax exemption from EIT, and shall revisit the taxability of ROs whose tax exemption has been previously approved based on the old rules.
A translation of Circular 18 will be posted on the Hwuason website within the next 7 days.