Nearly all forms of commercial activities have a taxation consequence. Tax is the most important source of fiscal revenue of China. The Chinese tax system is indeed complicated, and is constantly under changes as China opens up to the rest of the world.

There are currently 25 types of taxes divided into 8 categories, 14 of which applies to foreign invested entities (FIEs), foreign investors and or expatriates working and living in China. The major taxes are the enterprise income tax, value added tax (VAT), and business tax. Other taxes are applicable to FIEs include:

• consumption tax
• individual income tax
• resource tax
• land appreciation tax
• urban realestate tax
• vehicle and vessel licensing tax
• stamp duties
• deed tax
• slaughter tax
• agriculture tax
• customs duties

With the promulgation of the new Enterprise Income Tax law in January 2008, China sets out an entirely new approach to taxation. Chinese companies and FIEs now play on the same level playing field at 25 percent corporate tax rate applying to all companies. The old tax holidays and exemptions available to special economic development zones have now been revoked. All future tax incentives are provided to promote specific industries and sectors e.g. high-tech or environmental friendly technology companies.

The State Administration of Taxation places a heavy reporting and compliance burden on all entities doing business in China. FIEs are obliged to lodge tax returns and remit tax payments to both the local and State tax bureaus on a monthly basis. Most FIEs are primarily exposed to tax filings for corporate income tax, VAT, business tax and individual income tax for the entity’s employees on a withholding basis. Compliance in other tax categories further adds to the complexity and burden on tax reporting subject to the scope of business activities engaged by the FIE in China.

In addition to a wide range of tax burdens on compliance, FIEs are also obliged to contribute social insurances on behalf of its Chinese employees. As employers, FIEs are responsible to withhold the appropriate amount of these contributions from its employees’ wages and remit this together with the employer’s share of the contribution.

We provide accounting and tax services to offload the administrative burden on FIEs. Our team works closely with our clients in ensuring that accounting and tax records are kept in full compliance with statutory requirements (noting that all accounting and tax records must be in Chinese).

We take our services another step further by turning a compliance oriented exercise into a management accounting practice. Our combined team of professionals including overseas qualified accountants and locally registered tax agents works jointly to design and implement an accounting system that captures raw data from the Chinese bookkeeping records. Integrating this data into management and financial accounting reports for management decision making purposes and to monitor the financial activities and performance of the FIE.

Please contact us for assistance or further information.