As detailed in MOFTEC’s Circular Concerning the Establishment of Foreign Funded R & D Centers (2008, no. 218), and the Shanghai Municipal Government’s Provisional Regulations  of Shanghai Municipality on Encouraging Overseas Investment in the Establishment of Research and Development Institutions, companies establishing R&D centers in Shanghai enjoy following privileges: Research equipment for company use is exempt from customs duties and accompanying value added taxes; (2) Software purchased from abroad is exempt from custom duties and value added tax; (3) Income from technology transfer, technology development, technical consulting, and technical services is exempt from business tax; (4) companies with R&D expenses increasing at over 10% annually, will receive a 50% reduction of tax rates. Independently owned foreign funded companies can deduct R&D costs from pre tax income.

The unidentified expert also said the 24-percent rate for foreign companies established in coastal regionaldevelopment zones, such as the Yangtze River Delta and the Pearl River Delta, would rise directly to 25 percent in 2008.

However, foreign companies that have tax holidays, which provide for five tax-free years and another five years of up to 50 percent reduction, will retain those concessions for the full 10 years before facilitate new higher rates. 

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By Vincent Cheung from www.pathtochina.com

To those who are about to do trading business in China, the major advantage and purpose of setting up a Hong Kong company as the parent company and operating in the subsidiary trading company in mainland is tax avoidance. In Shanghai, there are a few company formation consulting conamies  that can help you establish a Hong Kong limited company and open Hong Kong bank account without having you fly to Hong Kong. It only takes three weeks and around 10,000 RMB to set up a Hong Kong company. It’s a very popular way for foreign investors to do trading business in Shanghai  and avoid tax by setting up a Parent Hong Kong company at the same time. Below is a detailed and practical introction about tax avoidance by employing formula.

Hong Kong adopts a territorial source principle of taxation. Only profits made in Hong Kong are taxable. Profits generated elsewhere are not subject to taxation. Different countries and areas follows different principles of taxation. For instance, in China, all of the profits, including those made overseas, are taxed by China government. In order to substantially lower the taxation burden, we can take advantage of the difference in taxation systems and policies in different places by using

Hong Kong companies to do entrepot Trade. The advantages of doing Import/export trade are as follows:

1)      Lower the cost of tax and accelerate the enterprises’ capital accumulation

2)      Avoid the loss incurred in the settlement of foreign exchange and lower the risk of exchange.

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By Vincent Cheung from www.pathtochina.com

Suppose that your trading WFOE is now established in Shanghai. You might will need to apply for the “General VAT Payer Status” (一般纳税人) in order to issue VAT invoice. Whether you should apply for general Vat payer status depends on your gross profit rate. VAT invoice is only use at the wholesale chain, between manufacturers and the wholesalers, or between manufacturers. Retailers selling goods directly to the final consumers don’t issue  VAT special invoices. Instead, state ordinary invoices inclusive of taxes at 4% to 6% are used. The benefit of issuing VAT license is that you can deduct input VAT from purchases when it pays the out VAT for sales, and get a VAT refund.  In order to be qualified to be a general VAT payer. You can start applying for it if your company meet any of following two requirements. 

 1.      You registered capital is over than 5 Million and the number of staff you hire is over  50.

2.      Your company ‘s annual turnover is more than 1.8 Million. You application will be approved If you can provide the sales contract or letter of intent proving that you will reach that target in a year. (more…)

By Vincent Cheung from www.pathtochina.com

After all those annoying procedures surrounded by bureaucracy and red tape, thanks goodness, your business license is finally issued by the SAIC. Now your company is legally established, and you can start to apply for both work permit and residency permit, so you can stay without being forced to leave China due to the expiration of your VISA. Congratulations on everything! However, it’s still not the time you can sit back and relax. You should get busy right away for tax registration now. As shanghai tax bureau’s increasing tightening up on the tax policies against foreign investors, the application for certificate for tax is becoming an exceedingly serious issue you should handle with great care. The on-sight inspection of foreign companies’ office premises started to be implemented by the tax bureau early this year. This new policy is to ensure that the newly established

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Edited by Vincent Cheung from www.pathtochina.com  

After representative office ( RO) is ultimately the suitable vehicle you choose to establish a presence in China, the primary concern is the taxation  There are three tax bases in

  The first question you are supposed to ask is whether the activities your RO engage in are tax-exempt or taxable. Not surprisingly, most of ROs are required to pay tax in China, that’s why you should have your RO registered in tax bureau during the incorporation of it, do tax filing on a monthly basis, and submit annual audit report.  

What types of Representative Office or Activities Are Tax-exempt?  

The taxability of a RO is decided by the nature of it. Effective in July 2003, Guo Shui Fa (2003) No. 28 has ruled out a lot of tax exemption policies. (more…)

The local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government, and cities as specifically designated in the state plan With a view to intensifying and regulating the collection and administration of individual income tax on foreigners (including people from Hong Kong, Macao and Taiwan as well as overseas Chinese, hereinafter the same), you are hereby notified of the relevant requirements for the administration of archival materials concerning the individual income tax on foreigners as follows: I. Establishing an Account for Foreigners by

By Vincent Cheung from www.pathtochina.com  On Sep 17^th , China’s State Administration of Taxation issued a statement on corporate income tax cut in 8 industries. Corporate income tax for 8 industries will be reduced , and the tax rates of entertainment, catering, retail and wholesale industries will be reduced substantially. The next tax rate will takes into effect on January 1, 2008. The tax rate adjustment’s most significant difference from tentative provision issued in 2002 is further segmentation of 5 industries into 8 industries. The tax rates are reduced by 30% on average.     Entertainment industry benefits the most from the new taxation policy with its tax rate being reduced to 15%-30% from the previous 20%-40%.  A securities manager stated that Agriculture, Forestry, Husbandry and Fishing enjoys the most significant tax rate reduction, and stimulated by the favorable news,  agriculture sector is getting more active and Beidahuang, Xiangli stock surges to its daily limit.   The new policy is lauded by small business owners who have difficulty with running their businesses. According to SAT’s (more…)

Be Vincent Cheung from www.pathtochina.com

Documents Required for Application  

1.Enterprise development funds, reserve fund ( or capital reserves, capital surplus), undistributed profits, dividend re-investment( capital increase ) application form ( get from Administration of Foreign Exchange or download , seal required) 
 2.Application report ( basic conditions of investors, basis conditions of profit-making enterprises, basic conditions of profit distribution, equity structure of the enterprise to be invested)
 3. Foreign Exchange Registration Certificate( the original will be returned after verification)
 4. Latest capital verification report and relevant annual audit report ( original as well as stamped photocopy) 
 5. The board of directors’ scheme and resolution to profit distribution( original)

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By Vincent Cheung from www.pathtochina.com

A lately reminder from China’s labor and Social Security Department states that new college graduates’probationary periods must be stipulated in the labor contracts with employers as part of their employment term and they should not be put on trial for more than six months.

As an employer may end, virtually for no good reasons, the labor contract with an employee who is still serving the probationary period under the old labor contract law, some employers have used abusively extended probationary periods to give sack to their staff unfairly. To solve this problem, the new Labor Contract Law connect the duration of trial to the term of labor contracts more specifically, and prohibits any employers from  requiring a employee to serve more than one probationary period. A probationary period should not be required for a labor contract with a term of less than three months or under the condition that the term ends upon the completion of one single assignment;  and must not be more than one month if the term of the labor contract is between three months and one year, must not be more than two months if the term of the labor contract is between one year and three years; and must not be more than six months if the term of the labor contract is more

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