FDI and Foreign Trade

Tax Implications of a Service Permanent Establishment

By Eunice Ku and Shirley Zhang

May 20 – With an increasing number of foreign enterprises starting to conduct business in China, tax liabilities resulting from business activities within the country are fast becoming an issue of key concern. If an establishment or venue of a non-resident enterprise constitutes a service permanent establishment (PE) in China, it will be subject to 25 percent CIT on all of its China-sourced income, as well as non-China sourced income that has an actual connection to the PE. We outline what constitutes a service permanent establishment in the current issue of China Briefing Magazine “Understanding Permanent Establishments in China,” which is available as a complimentary download on the Asia Briefing Bookstore through the end of the month. Continue reading →

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India Poised to Be China’s New Engine for Growth

Regional demographics mean China must cozy up to India or face consequences

Op-Ed Commentary: Chris Devonshire-Ellis

May 17 – Quite possibly the most senseless foreign policy position China has taken over the years has been its stance towards Japan. With diplomacy concentrating on World War II issues that most of the world has now moved on from, sovereignty disputes over close to worthless islands, and a rise of Chinese nationalism fueled by state propaganda, China has succeeded in alienating what remains one of the world’s largest economic powers, as well as a major historic foreign investor in China and a close regional neighbor. While Japanese investment will remain in China, the fallout from the Chinese government-fueled drop off in Japanese sales to China has made the Japanese business community now feel unwelcome in the country. Consequently, future Japanese investment is looking for more sustainable, and friendly, investment relations across the rest of Asia. Continue reading →

Posted in Business, Economy and Politics, FDI and Foreign Trade, Markets | 1 Comment

Triggering Permanent Establishment Status in China

By Eunice Ku and Shirley Zhang

Understanding-Permanent-Establishments-in-China May 15 – For foreigners doing business in China, tax is always a key concern. As a foreign business or individual, income derived from China may be subject to taxes in both your home country and China, which could substantially increase your tax burden.

Under China’s Corporate Income Tax (CIT) Law, a non-resident enterprise (i.e., an enterprise organized outside of China and whose effective management is not within China) without an establishment or venue in China is subject to CIT at a withholding rate of 10 percent on their China-sourced income, which includes:

Income from property transfers;
Income from equity investment such as dividends and bonuses;
Income derived from interests, rentals and royalties;
Income derived from donations; and
Any other income. Continue reading →

Posted in Business, FDI and Foreign Trade, Featured, Finance, Tax and Accounting, Legal and Regulatory | 1 Comment

China Simplifies Rules on Foreign Exchange Administration of FDI

May 13 – To further standardize and clarify the foreign exchange administration of foreign direct investment into China, the country’s State Administration of Foreign Exchange (SAFE) released the “Regulations on the Foreign Exchange Administration of Onshore Direct Investment by Foreign Investors (Huifa [2013] No. 21, hereinafter referred to as ‘Circular 21’),” which came into effect on May 13, 2013.

The SAFE promulgated Huifa [2012] No. 59 in November 2012, which simplified dramatically the foreign exchange administration procedures for inbound and outbound direct investment. On this basis, Circular 21 further simplified the foreign exchange administration procedures for FDI-related foreign exchange registration and settlements, account opening and usage, and fund remittances. Continue reading →

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China Briefing Releases ‘The China Tax Guide: Tax, Accounting & Audit (Sixth Edition)’

May 13 – China Briefing, in cooperation with its parent company Dezan Shira & Associates, has just released the sixth edition of The China Tax Guide: Tax, Accounting & Audit. Taxation permeates business transactions in China, and a strong understanding of tax liabilities enables foreign investors to maximize the tax efficiency of their foreign investment while ensuring full compliance with all tax laws and regulations. This guide overviews taxes for businesses and individuals, and discusses accounting and audit in the China business context.

This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China operations.

Continue reading →

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Picking China’s Middle Hanging Fruit – The New Inland Consumer

Op-Ed Commentary: Chris Devonshire-Ellis

May 13 – Much commentary in the media has recently been focusing on the “China slowdown” and the impact of the country’s lower GDP growth figures going forward. In reality, measuring GDP growth is always a losing game, and not a particularly good indicator of how an economy is progressing. China has had tremendous GDP growth over the past 20 years, but it has always been inevitable that this growth would begin to slow at some point. A country cannot keep expanding its economy indefinitely at 10 percent a year, it is simply not possible. Accordingly, the naysayers over China’s future when it comes to measuring it purely in GDP growth terms are misled about what is really going on. Sure, the economy is slowing, but not all at the same time, and it doesn’t necessarily mean anything bad. Continue reading →

Posted in Business, Central China, Economy and Politics, FDI and Foreign Trade, South China, West China | Leave a comment

New Issue of Asia Briefing: An Introduction to Development Zones Across Asia

May 10 – The new issue of Asia Briefing Magazine, titled An Introduction to Development Zones Across Asia, is out now and will be temporarily available as a complimentary PDF download on the Asia Briefing Bookstore throughout the months of May and June.

The use of development zones in their different guises has been an effective model essentially brought to prominence by China over the past 25 years to help both foreign investors and domestic companies meet in a relationship that provides tax advantages to both. Development zones typically permit the foreign investor to bring component parts into a country for assembly without having to pay import duties. Investors may then add in locally-sourced components, assemble the final product, and warehouse it all duty free before then having the option of exporting the finished product (collecting some VAT rebates on the locally sourced portion) or entering the domestic market with a product assembled at local labor costs. Continue reading →

Posted in Business, Central China, East China, FDI and Foreign Trade, Featured, Manufacturing, Northeast China, Shipping & Logistics, South China, West China | Leave a comment

Representative Offices as Permanent Establishments in China

May 7 – Representative offices (ROs) are taxed as permanent establishments in China. The “Interim Measures for the Administration of Tax Collection against Permanent Representative Offices (ROs) of Foreign Enterprises (guoshuifa No. 18 [2010])” issued by the State Administration of Taxation generally provides that ROs are required to pay corporate income tax on its profits, as well as business tax and value-added tax, which usually amounts to a liability of approximately 11 percent to 12 percent of the total expenses of the RO. ROs are required to keep proper accounting records to ascertain their actual revenues and profits and also accordingly file taxes. Continue reading →

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