The Eyes on China Monthly
February 2010
Editor´s Note
Welcome to the fifth issue of the Eyes on China Monthly. With auditing season in full swing, this month´s newsletter focuses on regulations for Representative Offices - both for the establishment and taxation thereof. Both the establishment and taxation regulations have become more strict as the economy in China has developed. The newsletter also details how China´s economy - as well as that of the entire world - have been affected by the progress made by China in the field of renewable energy.Marco van der Putten,
Managing Director, COO
1. RO Taxing Regulations
2. Updated Regulations for Representative Offices
3. Development of Renewable Energy in China
1. RO Taxing Regulations
Although the actions of a Representative Office cannot, by definition, generate income, there are still taxes that apply to RO owners. There are no income taxes levied on the RO (although there might be on the RO´s employees), but the office is subject to business tax and stamptax, which claim a small percentage of money exchanged following loan contracts or leases. There is also a 10% tax on the RO´s expenses. There are many additional (and varying) rules and regulations that apply to foreign firms operating in China. For example, according to PRC Law, expenses must be back-logged for 5 years, and the records must be kept in Chinese. By the end of April, annual audits must also be conducted by a CPA. Due to the ever-changing tax regulations, it is advisable to obtain professional advice before developing a tax strategy for your business in China.
Although the actions of a representative office cannot generate income, there are still taxes that apply to representative offices. There are no income taxes levied on the RO (except for on the RO´s employees), but the office is subject to stamp and expense tax. Here is a brief overview of the taxes that may apply to your RO:
Stamp Tax
An annual tax, stamp tax is charged for the maintenance of a lease. The charge is typically 0.1% of the yearly amount of the lease.
Expense Tax
Because an RO has no income to tax, the tax rate is calculated based on the RO´s expenses, including rent, office products, etc. The expense tax is calculated as the cost divided by 0.85 and then multiplied by 5%.
Personal Income Tax
Monthly income tax is charged for the salary of the RO´s employees. The personal income tax is calculated as the salary divided by 0.85 , then multiplied by .25%.
There are many additional (and varying) rules and regulations that apply to foreign firms operating in China. For example, according to PRC Law, expenses must be back-logged for 5 years, and the records must be kept in Chinese. By the end of April, annual audits must also be conducted by a CPA. Due to the ever-changing tax regulations, it is advisable to obtain professional advice before developing a tax strategy for your business in China.
2. Updated Regulations for Representative Offices
On January 20 2010 the State Administration for Industry and Commerce (SAIC) released new registration regulations concerning Representative Offices in China. These regulations will affect foreign investors with plans to set up Representative Offices in China as well as to those with Representative Offices already established.
For your information we have listed the new regulations issued by SAIC:
- The parent company must be in existence for two years.
- Besides the incorporation certificate, a bank reference letter also will need to be notarized and legalized.
- The registration certificate for an RO is now only valid for one year rather than three years; all existing ROs will have a one-year valid registration license when they renew their current registration certificate.
- Every year when an RO renews its license, a notarized and legalized incorporation certificate of the parent company will need to be provided.
- Foreign representatives of an RO, including the chief representative, cannot exceed four; for existing ROs with more than four foreign representatives (including a chief representative), the SAIC will not require the RO to decrease their number of representatives but will not approve any additional foreign representatives.
- The local branch of the Administration of Industry and Commerce will verify all the information of the RO including its registered address within three months after the RO obtains its registration certificate.
For those interested in receiving more information about RO registration procedure, taxation regimes of ROs or for other Business Establishment enquiries contact us per e-mail, phone or fax.
3. Development of Renewable Energy in China
China continues to develop as a leader in the field of renewable energy – both in manufacturing and domestic implementation. According to the Chinese Renewable Energy Industries Association, jobs in renewable energy industries are expected to increase by more than 10% each year in China alone. The government offers many subsidies in order to encourage adaptation of green technology and is also spending increasingly large amounts of money in order to develop the renewable-energy portion of the national electricity grid. In February, the government declared that the national energy policy would be supplemented by the creation of a National Energy Commission to oversee the expansion of renewable energy in China. Already the biggest producer of solar panels and wind-powered technology, China continues to develop as a top country for green innovation. Potential Increase in Land Owner Rights
As part of their commitment to economic development — no matter what the cost — the Constitution gives the government the right to confiscate property without compensating the owner. A system that has raised much controversy and resulted in many riots and demonstrations, it is alleged to be changing within the coming year according to the Chinese government. A new regulation, slated to be passed this year, would make it illegal to evict individuals by force, and it would otherwise strengthen the rights of property owners, entitling them to fair compensation for their property.
Disclaimer:
The information provided above does not represent legal or financial advice, and neither Eyes on China nor her subsidiaries shall be held liable for its contents. For more information, please contact Eyes on China at +86 (0)10 65880899.