The State Administration of Taxation has issued the tax regulations for non-resident enterprises that do business and have establishments or places of business in China.
Tax registration and filing for non-resident enterprises in China is set to begin from March 1, 2009 while 2008 corporate income tax (CIT) filing should be done by May 31, 2009.
Under the administration's Decree 19 on Provisional Administrative Measures Governing Tax Collection on Contracted Projects and Provision of Services by Non-resident Enterprises, companies that contract in projects or provide services in China should register with the tax bureau where the project is located within 30 days of finalizing the contract. Companies should then register again within 15 days after the project has been completed.
Local companies and individuals that outsource projects to non-resident enterprises should submit contract/service-related documents, tax registration certificates of the non-resident enterprises and other relevant documents to the bureau within 30 days after contract signing.
In the event that details of the contract are revised, non-resident enterprises should report the changes to the tax bureau within 10 days after. Moreover, companies are also required to report their billing status and submit documents within 30 days of receiving billing.
Local companies and individuals that are required to withhold tax must register with the tax bureau where the project is located within 30 days from the start of the withholding obligation. Depending on the instructions from the tax bureau, non-resident enterprises could be the CIT, business tax (BT) and value-added tax (VAT) withholding agents.
Non-resident enterprises are required to submit their CIT both quarterly and annually in addition to also settling tax payment upon completing their projects.
If a non-resident enterprise does not register and submit documents needed by the tax bureau, they shall be excluded from the preferential treatment of tax treaties.
Non-resident enterprises with BT or VAT taxable activities and with places of business in China should file and pay BT or VAT themselves. Those with no place of business should have their withholding agents complete filing and payment.
Non-resident enterprises or China outsourcers should submit necessary document to the tax bureau within 30 days of signing the contract, or they should withhold BT and VAT for the non-resident enterprises.
In the event that non-resident enterprises are not able to pay tax on time, the local tax bureau is authorized to collect information on other income derived by non-resident enterprises in China and charge overdue tax and interest surcharges from the payers of other income items.
The Administrative Measures on Final Settlement and Payment of CIT for Non-resident Enterprises, Circular 6, dictates that non-resident enterprises that have establishments or places of business in the country are still required to pay CIT regardless of whether they make a loss or profit.
Other details include:
- Non-resident enterprises should submit annual CIT returns to the tax bureau and complete annual CIT filing within five months of the end of a year.
- Non-resident enterprises that stop business in the middle of a year should complete CIT filing within 60 days of termination.
Non-resident enterprises that meet the following criteria are exempt from annual filing:
- The contract in China lasted less than one year and ended in the middle of a year, and the relevant taxes have been fully settled.
- The non-resident enterprise completes deregistration procedures during the annual filing period.
- When a non-resident enterprise fails to complete annual filing in time, the tax bureau may charge a penalty between 2,000 yuan ($292) and 10,000 yuan ($1,464). During this time, the annual tax payable will be confirmed and the company will be advised to settle this amount within a specified period.
- Other situations as approved by the tax bureau.
The author is the founder and senior partner of Dezan Shira & Associates (www.dezshira.com)