Taxation of Representative Offices in China (3) - Relevant Taxes

If a foreign representative office has any taxable activities in China, the income attributable to the taxable services performed in China will be subject to Enterprise Income Tax (EIT) and Value Added Tax (VAT) and surcharges. EIT is imposed on the assessable profits based on the relevant expenditures. The current tax rate of EIT is 25%. In addition, VAT is levied at 6% on the taxable revenue for general taxpayers, and 3% for small-scale taxpayers.

In general, a quarterly EIT return should be prepared. This should be based on the unaudited management / expenditure account of each quarter and be filed within 15 days. Within five months after the end of a tax year (i.e. calendar year), an annual EIT return - supported by the audited financial statements or expenditure accounts for the year - should be filed for the reconciliation and finalisation of the tax liabilities for the year.

For VAT and surcharges, the tax declaration and payment time depends on the nature of taxpayers. Generally speaking, a monthly return should be filed within 15 days at the end of each month for general taxpayers, and a quarterly return should be filed within 15 days at the end of each quarter for small-scale taxpayers.

Besides EIT and VAT, the foreign representative office should also pay attention to the other taxes as following:

- The import Customs Duty and import taxes (i.e. Value Added Tax and Consumption Tax) on the importation of commodities into China;

- Stamp Duty payable on documents enacted or empowered in China;

- The Individual Income Tax withholding and filing requirements in respect of the individuals working for the foreign representative office.

According to Tax Collection and Administration Law of China, when a taxpayer has been approved for tax exemption, the tax returns prepared on a nil taxable income basis should still be filed with the tax bureau in a timely manner.