Shanghai Issues Trial Procedures for Consolidated CIT Payments by Headquarters

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Mar. 23 – Shanghai’s state and local tax bureaus have issued the “Trial Procedures on the Filing of the Allocation Proportion of Consolidated CIT Payments by Headquarters in Shanghai (huguoshuisuo [2010] No. 10)” (“Trial Procedures”) on March 10, 2012. The Trial Procedures apply to headquarters in Shanghai that operate trans-regionally and pay CIT on a consolidated basis. It provides for the materials that these headquarters should submit for the filing of branches’ allocation proportion of CIT.

The Trial Procedures have been issued based on the “Interim Measures for the Administration of the Collection of Consolidated Payment of Corporate Income Tax (CIT) in Trans-Regional Operations (guoshuifa [2008] No.28)” (“Interim Measures”) issued by the State Administration of Taxation on March 10, 2008.

Consolidated tax payments
According to the Interim Measures, where a resident enterprise sets up a branch in another region of China, the resident enterprise should pay tax on a consolidated basis.

Consolidated payment of tax means that, at the end of every year, the headquarters is responsible for annual final CIT calculations and payments. It should calculate collectively all taxable income and tax payable for the enterprise and its branches. After that, it should calculate the balance between the CIT prepaid on a monthly or quarterly basis and the tax payable by the enterprise and its branches, whereby excess will be refunded and any deficiency supplemented.

Allocation proportion to branches
Enterprises are required to prepay, on a monthly or quarterly basis, a CIT prepayment amount for the headquarters and the branches based on the realized profit of the current period according to the allocation method provided for in the Interim Measures.

The allocation proportion of the CIT payable by the headquarters and the branches is 50 percent each. The 50 percent of CIT to be paid by branches will be allocated among all branches based on their allocation proportion, which is calculated based on three factors:

  • The branch’s business income
  • Staff salaries
  • Total assets of the previous years

Filing of allocation proportions
The Interim Measures require the headquarters to calculate and determine the allocation proportions of income tax to the branches in the current year according to the above method and file the necessary forms to the in-charge tax authority at the location of the headquarters.

Accordingly, the Trial Procedures detail the materials that have to be submitted for filing in Shanghai, which include the following:

  1. Two copies of the “Allocation Proportion Calculation Sheet of Branches to Shanghai Consolidated CIT Payment Headquarters” (in both paper and electronic version);
  2. “Annual CIT Returns Form (Category A),” financial statements, and payroll information of the head office from the previous year; and
  3. Financial statements, operation and payroll information of the regional branches outside of Shanghai from the previous year.

Filing timeline
Before June 20 each year, headquarters should file the consolidated CIT allocation proportion of its branches for the period starting from the third quarter of the current year to the second quarter of the next year. If the enterprise closes a regional branch outside of Shanghai, the headquarters should undertake the allocation proportion filing with the in-charge tax authority within 15 days after the branch is de-registered.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, India, Singapore and Vietnam. The firm specializes in assisting foreign enterprises with their tax obligations. For further advice and specifics relating to these recent measures, please email china@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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