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Developing Your
Business in China:
Master the Chinese
Tax System
Part of the TCS Hong Kong European Road show
September 20...
Content
 China
‒ An overview of Tax Structural Enhancements
‒ An overview of Tax Law Focus
‒ An overview of Tax Developme...
Welcome to China
Developing your business in China: Master the Chinese Tax System 3
Mandarin 101
Developing your business in China: Master the Chinese Tax System 4
How are you?
nǐ hǎo ma
I am Good!
wǒ hěn h...
China‟s Geography
Developing your business in China: Master the Chinese Tax System 5
Key Facts and Figures (2012)
 China is as large as the whole continent of Europe.
 There are 22 provinces, 5 autonomous ...
Tax Structural Enhancements
Municipal
Country
Head of your Tax
Bureau
 There is national regulation
but local enforcement...
Tax Structural Enhancements
China now has more participation in various multinational
organizations for example:
‒ World t...
Tax Law Focus
Scrutiny of Non
residents
Expanded
Jurisdiction
An era of
Transformation
Tougher tax
audit/
enforcement
• Ne...
Abnormal and
frequent profit
fluctuations
Persistent
losses or low
profits
Absence or
incomplete TP
documents
Non arm’s
le...
Tax Development Trends
B2V: Business Tax to Value
Added Tax
Key Facts:
 Nationwide application from 1
August 2013 for all...
Tax Development Trends
Developing your business in China: Master the Chinese Tax System 12
There is No
“One China”
Strategy
Tax Development Trends
Southern China
 Development of three coastal
areas in Guangdong province,
subject to reduced CIT o...
Hong Kong:
Investment Holding
Overview
Developing your business in China: Master the Chinese Tax System 14
Hong Kong Investment Holding
Hong Kong is NOT a tax heaven and there can be many
benefits from managing Chinese's business...
Hong Kong Investment Holding
Offshore trading in Hong Kong can be used to streamline
processes and maximize on business ta...
Hong Kong Investment Holding
European
supplier
Asian
Customer
Developing your business in China: Master the Chinese Tax Sy...
Summary of Key
Points
Developing your business in China: Master the Chinese Tax System 18
Red Flags
What puts my company at risk?
What are the warning signs of weak tax health in China?
 China operations set up ...
TCS Hong Kong Corporate Solutions
 Meeting Management: Fieldwork and meetings with local
management/finance managers.
 D...
TCS Hong Kong Corporate Solutions
 Structuring: Identify tax planning and restructuring options to save
tax costs while b...
TCS Hong Kong Individual Solutions
 TEMP: Tax Efficient Mobility Program
 Review existing staff secondment arrangement
...
Key Points
The China and Hong Kong Markets:
 There has been a tightening of taxation of non-resident in
China.
 An incre...
For more information contact
TCS in France
Web:www.tcs-soregor.com
E-Mail: contact@tcs-soregor.fr
Tel. +33 (0) 1 44 78 89 ...
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Developing you business in China, Chinese tax health

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Developing your business in China: Master the Chinese tax system. Find out about:

- The enhancements of Chinese tax structure
- The new legal focus of the Chinese government
- Tax Development Trends
- How to promote positive corporate and individual tax health and TCS Hong Kong Solutions

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  1. 1. Developing Your Business in China: Master the Chinese Tax System Part of the TCS Hong Kong European Road show September 2013
  2. 2. Content  China ‒ An overview of Tax Structural Enhancements ‒ An overview of Tax Law Focus ‒ An overview of Tax Development Trends  Hong Kong ‒ Investment Holding Overview ‒ How to promote positive tax health: TCS Hong Kong Solutions  Key Points  Contacts Developing your business in China: Master the Chinese Tax System 2
  3. 3. Welcome to China Developing your business in China: Master the Chinese Tax System 3
  4. 4. Mandarin 101 Developing your business in China: Master the Chinese Tax System 4 How are you? nǐ hǎo ma I am Good! wǒ hěn hǎo Welcome to China. huān yíng nǐ lái dào zhōng guó
  5. 5. China‟s Geography Developing your business in China: Master the Chinese Tax System 5
  6. 6. Key Facts and Figures (2012)  China is as large as the whole continent of Europe.  There are 22 provinces, 5 autonomous regions and 4 municipal cities.  The highest state body is the National People of Congress (NPC).  China has the worlds 3rd largest Gross Domestic Product (GDP): € 6,348 billion.  The worlds largest Population: 1.354 billion.  The worlds largest Foreign exchange reserves: € 2,478 billion.  A Tax revenue of: € 1,237 billion. Source: Statistical Communiqué of the People's Republic of China on the 2012 National Economic and Social Development issued on February 22, 2013 Developing your business in China: Master the Chinese Tax System 6
  7. 7. Tax Structural Enhancements Municipal Country Head of your Tax Bureau  There is national regulation but local enforcement. Meaning interpretation varies from location to location.  It is important to understand which body to communicate with as well as their interpretations of regulation.  Be wary of the term „Guanxi‟ (relationships) as the structures within local practices can change.  Having the correct documentation and evidence to maximize compliance is key. Developing your business in China: Master the Chinese Tax System 7 How Many Different local practice Beijing (Governing body) Provincial
  8. 8. Tax Structural Enhancements China now has more participation in various multinational organizations for example: ‒ World trade organization ‒ The Group of 20 (G20) ‒ The United Nations ‒ Joint international Tax Shelter Information Centre ‒ Study Group of Tax shelter administration and research ‒ 101 double tax agreements and 9 Tax information exchange agreements Developing your business in China: Master the Chinese Tax System 8
  9. 9. Tax Law Focus Scrutiny of Non residents Expanded Jurisdiction An era of Transformation Tougher tax audit/ enforcement • New anti avoidance rules. • Equity transfer, tax free recognition. • Transfer Pricing documentation. • Tax residency. • Beneficial owner (BO). • Business purpose and commercial substance. • Ongoing release of circulars. • Transforming China into a service economy. • Targeted location/industry incentive. • Information exchange. • Various transaction disclosure forms. • Tax internal control. • Tax administration of non resident with effective management in China. Developing your business in China: Master the Chinese Tax System 9 More Sophisticated Increased focus on…
  10. 10. Abnormal and frequent profit fluctuations Persistent losses or low profits Absence or incomplete TP documents Non arm’s length pricing Transactions with related parties in tax heavens Expansion despite low profit or losses Lower profitability than industry average What Makes Me a Target for an Audit? Developing your business in China: Master the Chinese Tax System 10 One or all of the following…
  11. 11. Tax Development Trends B2V: Business Tax to Value Added Tax Key Facts:  Nationwide application from 1 August 2013 for all transportation and modern services sectors.  Expand to other industries by 2015.  The 3Vs: VAT registration + VAT invoicing control + VAT compliance.  Annual turnover > RMB 5 million or small scale. 1+ 7 Model From the August 1 2013 Transport Industry › Land transportation › Water transportation › Air transportation › Pipeline transportation Certain Modern services industry R&D and technology service Culture and creative services Logistics auxiliary services Movable property leasing Authentication & consulting services Production, broadcasting and distribution of radio: television products Developing your business in China: Master the Chinese Tax System 11
  12. 12. Tax Development Trends Developing your business in China: Master the Chinese Tax System 12 There is No “One China” Strategy
  13. 13. Tax Development Trends Southern China  Development of three coastal areas in Guangdong province, subject to reduced CIT of 15% and rebate of individual income tax for qualified talents: ‒ Qianhai in Shenzhen ‒ Hengqin in Zhuhai ‒ Nansha in Guangzhou Subject Eastern/Central China  Shifting to services, high- value outsourcing, new hi- tech, environmental protection. Western China  A new wave of inbound investment by offering special fiscal incentives (e.g. reduced 15% tax rate). Developing your business in China: Master the Chinese Tax System 13
  14. 14. Hong Kong: Investment Holding Overview Developing your business in China: Master the Chinese Tax System 14
  15. 15. Hong Kong Investment Holding Hong Kong is NOT a tax heaven and there can be many benefits from managing Chinese's business from Hong Kong such as:  Territorial tax system.  No income tax on foreign dividends.  No capital gains tax.  No dividends/Interest withholding.  No foreign exchange control.  Advance Rulings available.  Keep expanding treaty network.  Proximity to China – One country Two Systems  Easier to obtain BO status under HK/China DTA under Circular 165. Developing your business in China: Master the Chinese Tax System 15
  16. 16. Hong Kong Investment Holding Offshore trading in Hong Kong can be used to streamline processes and maximize on business tax savings because:  Offshore trading is non-taxable.  Investment holding is non-taxable.  Service can be both onshore or offshore  Manufacturing via processing in China is 50% taxable in Hong Kong. Please see an example on the next slide… Developing your business in China: Master the Chinese Tax System 16
  17. 17. Hong Kong Investment Holding European supplier Asian Customer Developing your business in China: Master the Chinese Tax System 17 European supplier Hong Kong Offshore trading Asian Customer Example 1: Basic Model Example 2: Offshore trading via Hong Kong Profit €50 Profit €20 Profit €30 Profit €30 in Hong Kong, can be claimed offshore. Structural Example
  18. 18. Summary of Key Points Developing your business in China: Master the Chinese Tax System 18
  19. 19. Red Flags What puts my company at risk? What are the warning signs of weak tax health in China?  China operations set up for years without regular review.  Many inter-company transactions without proper documentation.  Insufficient in-house resources to keep updated on the latest tax regulations and compliance requirements.  Full reliance on local team to ensure compliance.  Not sure/not updated of local compliance status.  Non resident deriving income from China. Developing your business in China: Master the Chinese Tax System 19
  20. 20. TCS Hong Kong Corporate Solutions  Meeting Management: Fieldwork and meetings with local management/finance managers.  Documentation Review: review selected documentation and tax filing papers.  Risk Management: ‒ Identification of technical issues, quantify under-reporting exposures, suggest remedial action. ‒ Identification of major compliance issues and local irregularities tax reporting. ‒ Resolve time sensitive issues before being targeted by a government tax audit, minimize interest and penalty Developing you r business in China: Master the Chinese Tax System 20 What we do…
  21. 21. TCS Hong Kong Corporate Solutions  Structuring: Identify tax planning and restructuring options to save tax costs while better managing tax compliance.  Circular 698 review ‒ Substance and BO status of HK/BVI holding structure. ‒ If vulnerable to challenges. ‒ Where 5% dividend withholding rate is NOT automatic anymore. ‒ Tax resident certificate: conditions required to be fulfilled.  Transfer pricing study and documentation management.  Devise efficient cross charging mechanism to avoid trapped cash. Developing you r business in China: Master the Chinese Tax System 21 What we do…
  22. 22. TCS Hong Kong Individual Solutions  TEMP: Tax Efficient Mobility Program  Review existing staff secondment arrangement  Assess documentation and specific terms  Tax filing mechanism review: Tax under-reporting exposures or tax planning scheme e.g. time apportionment  Recommendations to TEMP including revise secondment contract, re-set staff reporting protocol, performance evaluation system, segregation of duties etc. Developing your business in China: Master the Chinese Tax System 22 What we do…
  23. 23. Key Points The China and Hong Kong Markets:  There has been a tightening of taxation of non-resident in China.  An increased focus on anti-avoidance including transfer pricing.  Obsolete structures in China e.g. Representative Office.  New regional opportunities across China.  Redefined supply chain model in Hong Kong and China.  China is moving from low-end manufacturing to high value added, environmental friendly manufacturing.  Hong Kong has a wider role in Chinese business development.  International mobilization can trigger corporate exposures, be proactive and transparent. Developing your business in China: Master the Chinese Tax System 23
  24. 24. For more information contact TCS in France Web:www.tcs-soregor.com E-Mail: contact@tcs-soregor.fr Tel. +33 (0) 1 44 78 89 90 Lucien Raveux, Senior Manager of the International Tax and Consulting Department Silvia Létang, Client Relationship Manager - FCCA Audit Ruby Braithwaite, International Marketing Manager TCS in Hong Kong Web: www.tcscpa.com.hk E-Mail: info@tcscpa.com.hk Tel: +852 3422 3823 Kenneth Young, Managing Director Leo To, Director Eddy Yeung , Director and head of Tax for China and Hong Kong
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