Tax Increase for Companies Doing Business in China
Many international companies having operations in China are bound to be hit by the two new surtaxes that will affect their tax filings starting in January 2011.Foreign enterprises, foreign invested enterprises, and foreign individuals in China must now pay the Urban Construction and Maintenance Tax as well as an Education Surcharge.
Published on: Mar 3, 2016
Transcripts - Tax Increase for Companies Doing Business in China
Tax Increase for Companies Doing Business in ChinaMany international companies having operations in China are bound to be hit by the two new surtaxes that willaffect their tax filings starting in January 2011.Foreign enterprises, foreign invested enterprises, and foreignindividuals in China must now pay the Urban Construction and Maintenance Tax as well as an Education Surcharge.Earlier, these taxes were only imposed on domestic enterprises and Chinese individuals with foreign enterprises,but now all tax payers of Chinas indirect taxes must pay.A brief about the surtaxThis surtax is calculated as a percentage of the actual amount of the Value Added Tax (VAT), the consumption taxand the business tax paid by the taxpayers. While the Education Surcharge is 3 percent across the board, the ratefor the Urban Construction and Maintenance Tax varies by location. In city areas like Shanghai and Beijing, the rateis 7 percent, while in county and township areas the rate is 5 percent, and in other, less populated areas the rate isas low as 1 percent.As per the principle of tax burden sharing, those who benefit, pay and those who benefit more will pay more. Thetwo surtaxes will increase the cost of doing business in China or with China. For instance, a foreign enterpriseproviding consulting services to a Chinese enterprise in Shanghai, will need to pay a business tax of 5 percent ofthe service fee as well as an additional surcharge of 0.5% of the service fee [5% x (7% + 3%)]. The recent change inlaw is another effort by the Chinese government to put domestic enterprises on an equal footing with foreignenterprises and foreign invested enterprises. Two years ago China unified its enterprise income tax law for the firsttime.Foreign companies need to prepare to for the tax increase and review the effect on their business plans. These twosurcharges should start to apply to the tax filing of Foreign Invested Enterprises conducted in the month ofJanuary2011.Do you need the help of an expert?In the current economic climate, the last thing you want to do is to pay your hard-earned profits as unnecessarytaxes when doing business overseas. To overcome any challenges in taxation, it is best to partner with an expert tohelp simplify the process. They have the complete up-to date information on how to keep up with the everchanging laws regarding expat tax, global transfer pricing, regulatory filings, to name a few. A dependableprofessional partner in an international expansion can help eliminate the anxieties concerning your overseasexpansion project and allow you to focus on building your business alone.Click here for more on expat tax advice & intercompany transfer pricing