SAT Increases Deemed Profit Rates for Representative Offices in China

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Mar. 4 – Representative offices are no longer exempt from corporate income tax in China according to a recently issued circular by the State Administration of Taxation.

Guoshuifa [2010] No. 18, issued on February 20, 2010, explicitly stipulates that ROs shall pay corporate income tax on their taxable income, as well as sales tax and VAT, and will be required to assess CIT liability using a cost plus method or actual revenue method. Under either method, the deemed profit margin shall be no less than 15 percent, an increase from the previous deemed profit margin of 10 percent. The effective date of the measures is January 1, 2010.

ROs should obtain business registration documents (or the relevant department approval) from their local tax authorities within 30 days from the date the information was obtained.

If the content of tax registration changes or there is an early termination of business activities, tax collection should be in accordance with law and relevant provisions of the declaration.

In accordance with the relevant laws, administrative regulations, and the State Council, ROs must provide valid accounting records. The new circular mentions that tax authorities have the right to penalize ROs providing incomplete or incorrect records.

ROs should also perform the principles of actual functions in matching with potential risks, and accurately calculate their taxable income – declaring to the tax authorities at least 15 days before the end of quarter.

For more information regarding ROs in China, please contact Dezan Shira & Associates at