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TAXATION ON REPRESNETATIVE OFFICES
A representative office (RO) achieves the purposes that a foreign investor could establish a PRC presence in a relatively short time period and that the foreign investor is not required to make any commitment to bring in capital either in cash or in kind. Furthermore, the fact that an RO’s approval certificate can be valid for a one-year period provides for an exit option for the foreign investor to test the water.

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Legal authority
The PRC Tax Levy and Administration Law and its Detailed Implementation Regulations
Tax registration
Every foreign investment enterprise (FIE) shall apply for a tax registration at both the national tax office and local tax office.
Types of tax registration:-

National income registration and local income tax registration. Both registrations are mandatory and the registration application must be submitted within 30 days of obtaining the business license from the local office of “State Administration of Industry and Commerce” at the city level or above;

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To the people’s governments at the provincial level, the people’s governments of autonomous regions and municipalities directly under the State Council, the ministries, and the institutions directly under the State Council

The PRC Enterprise Income Tax Law (referred to as the “EIT Law” hereafter) and the Implementation Regulations of the PRC Enterprise Income Tax Law (referred to as the Implementation Regulations hereafter) will take effect on January 1, 2008. In accordance with Article 57 of the EIT Law, the State Council gives notice on the issues of grandfathering preferential policies under the EIT Law as below:

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It has been a 13-year journey from the preliminary work in 1994 to the passing of thePRC Enterprise Income Tax Law (referred to as “the EIT Law” hereafter) on 16th March 2007, which marked the completion of the unification of two tax systems for  domestically funded and foreign funded enterprises in China. It is a system innovation in the process of building socialism and a harmonized society within the country. To reap the benefits of the new tax system depends very much on its implementation in an effective manner. A few days ago, the State Council announced the long-awaited  Implementation Regulations of the PRC EIT Law (referred to as “the Implementation Regulations” hereafter), which is to come into play with the implementation of the  EIT Law.

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Enterprise Income Tax Law of the People’s Republic of China

Order of the President of the People’s Republic of China
(No. 63)

The Enterprise Income Tax Law of the People’s Republic of China, which was adopted at the 5th Session of the 10th National People’s Congress of the People’s Republic of China on March 16, 2007, is hereby promulgated and shall come into force as of January 1, 2008.

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The first is to allow deduction of the input VAT for purchased fixed assets. Before the amendment, input VAT is not allowed to get deducted from the output VAT. The production type VAT system is adopted and that has increased the tax burden of the enterprise buying the machinery and equipment. To reduce the tax burden, the revised VAT regulations remove the practice of such non-deduction, and allow the taxpayer to deduct the input VAT for purchased fixed assets. That helps achieve the transformation of the production type VAT system to one of consumption type.

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A: The principles having been followed in the amended VAT regulations taking into consideration of the economic situation and the urgency of the transformation reform are as follows:

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The old VAT regulations have played a positive role in ensuring the fiscal revenue and regulate the national economic development in the past. But the old VAT regulations are production type VAT that did not allow the input VAT for the purchased fixed assets to be offset against output VAT, and that has resulted in double taxation and put a brake on the enterprise’s incentive for its technological  improvement. The voice in all sectors for the VAT transformation reform has got very loud in view of the development and change in social and economic environment these years. The issue that the VAT transformation reform was to be introduced at the appropriate time was raised during the third plenary of the 16th session of the China Communist Party clearly. The “11th Five-year Plan” clearly outlines that the VAT reform should be completed during the period of the 11th Five-year Plan. With the approval from the State Council, as from 1st July 2004, the experimental trials have been launched in the Northeastern and Central regions and that gives us successful experiences. To eliminate double taxation, reduce the tax burden, encouraged technological improvement and industrial structure adjustment, it is necessary to introduce the transformation reform on a nationwide scale. The introduction of VAT transformation reform in full scale is especially urgent, as a measure of coping with the negative impact of the international financial crises on the economic development of our country, increasing domestic demand, promoting investment in equipment and expansion in production, and maintaining the steady and relatively fast growth of our country’s economy. Therefore, the State Council made a decision to implement the VAT transformation reform on a nationwide basis as from 1st January 2009.

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