China Briefing is a monthly magazine and daily news service about doing business in China. We cover topics relating to the Chinese economy, the market in China, foreign direct investment and Chinese law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates
In this issue, we discuss annual compliance requirements for China foreign-invested entities (FIEs), with notes on regional differences and tips from experienced accountants and auditors.Many Western parent companies today are concerned by the perfunctory nature with which annual compliance procedures are carried out in China, and with good reason. Chinese audit reports roll into group audit reports, and thus it is imperative to have confidence in these figures. Furthermore, annual compliance procedures, when conducted with care, can tell stories about what’s going on behind the scenes in a company’s operations. We detail the full audit processes for Representative Offices, Wholly Foreign Owned Enterprises and Joint Ventures in China.
In addition to company audits, expats in China must file their annual individual income tax (IIT) declaration for 2012 earnings. We discuss IIT liability in China (which depends on income source and time period spent in China), IIT rates and calculation (taking into account number of days spent in China), permissible tax deductions, and how working for a permanent establishment can change tax liabilities.
Finally, we look at the current U.S. Securities and Exchange Commission proceedings against the Chinese arms of the “Big Four” accounting firms from the perspective of SME foreign investors.
To read the full version of this magazine, please purchase this issue in the Asia Briefing Bookstore. Companies requiring assistance may contact Dezan Shira & Associates at email@example.com or visit www.dezshira.com
This month’s China Briefing cover art could not be more apt, as it shows the famous Chinese seafarer Zheng He, trading Chinese goods with the West (the image appears to be set in what is now Istanbul). Considering this painting shows him as a young man, the time frame would be around the year 1400 – well over 600 years ago. Yet even today, international trade with China continues to fascinate.
As China’s domestic wealth and disposable income increases, so do the opportunities for international businesses to sell to China. What was a relatively poor country 20 years ago, possessing a young and eager workforce, yet little purchasing power, has matured to become today the world’s largest trading nation.
In this issue of China Briefing, we focus on the minutiae of trading with China – regardless of whether your business has a presence in the country or not. Of special interest to the global small and medium-sized enterprises, this issue explains in detail the licensing framework concerning trading with the most populous nation on Earth – plus the inevitable tax, customs and administrative matters that go with this.
China is about to become a dynamic and vital market for international businesses globally, and here we show you the protocols. For businesses whose trade with China requires a more permanent in-country presence, we conclude the issue with an examination of establishing a trading company in China – allowing you to possess your own import and export licenses as a foreign business.
We hope this issue of China Briefing will sow the seeds of imagination for smaller businesses wishing to participate in, sell to, and trade with what is fast becoming one of the most important consumer markets in the world.
In this issue of China Briefing Magazine, we focus on the regulatory issues affecting cross-border M&As, and the key tax points foreign investors should be aware of when conducting M&As involving domestic Chinese companies. We also address the key aspects of transfer pricing, corporate restructuring exemption, and valuation as they relate to M&As.
With an increasing number of foreign enterprises starting to conduct business in China, tax liabilities resulting from business activities in China are quickly becoming an issue of key concern. Many foreign enterprises that conduct business in China are unaware that their business activities here may constitute a permanent establishment (“PE”), which thus subjects them to corporate income tax.
In recent years, China’s tax authorities have tightened the tax administration of expatriate secondment arrangements, whereby overseas parent companies may be challenged that their actions constitute provision of services to their China subsidiary and, hence, result in the creation of a Service PE in China.
This month’s issue of China Briefing Magazine casts some light on this subject by discussing the circumstances that trigger the creation of a PE in China, focusing on Service PE, in the first article. In the second article, we discuss the tax implications for a non-resident enterprise where its activities constitute a Service PE in China.
At the end of the magazine, we also address the taxation of representative offices in China and list the countries and regions that have DTAs with China. We hope that a better understanding of this subject will allow foreign investors to plan their activities in China more efficiently.
In this issue:
• Triggering Permanent Establishment Status
• Tax Implications of a Service Permanent Establishment
• Does a Representative Office Constitute a Permanent Establishment?
• Countries with Double Taxation Avoidance Agreements with China
While the United States and Europe continue to lead in the production of top-end manufacturing and smart technologies, China is slowly but surely climbing the technology ladder, and is actively trying to raise the human capital and managerial skills needed to lead such growth. Meanwhile, China continues to outpace competitors in the mass production of those basic, low value-added products necessary in the daily lives of people around the world. It has also managed to develop a fast and efficient national network of roads, railways, ports and airports coupled with a first-tier integrated logistics system. On top of these structural accomplishments, China has created a skilled workforce capable of producing anything an engineer can design, and a comprehensive supply chain that sources energy and raw materials from around the globe.
Therefore, while many foreign enterprises begin to look elsewhere in emerging Asia for their sourcing needs in an effort to reduce costs, further integrate supply chains, or hedge their China investments, there remains a good chance that the most competitive prices, and greatest values, can still be found in China. That’s why China today accounts for roughly 33 percent of the goods produced worldwide, and that’s also why businesses involved in global trade - whether sourcing industrial items, consumer goods, component parts or garments - cannot afford to overlook China.
In this issue of China Briefing Magazine, we outline the various sourcing models available for foreign investors - representative offices, service companies and trading companies - and discuss how to decide which structure best suits the sourcing needs of your business. Perhaps the most important factors to consider when choosing a sourcing structure are your staffing requirements, your need for operational flexibility, and which option offers the greatest cost efficiencies. In this issue, we compare how each of these factors match up with the available sourcing platforms in order to help foreign businesses find the best option for their specific sourcing needs.
In this issue:
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