This document summarizes various tax considerations and structures for foreign investment in China:
1) It outlines two main investment vehicle options for foreign companies entering China and discusses the advantages and disadvantages of each.
2) It provides an overview of withholding tax rates on dividends from China depending on the jurisdiction of the foreign investor.
3) It presents Hong Kong as a favorable holding company jurisdiction due to its low tax rates and ease of operations in China.
- The Asian landscape - uncertainty in the near term
- Structuring considerations
- Risk allocation amongst parties
Prabhu Narasimhan, Counsel, White & Case
Peita Menton, Partner, White & Case
India's Union Budget for FY20 is a half prepared cocktail of Gandhi, Marx and Adam Smith. Not many previous attempts to make such cocktail have succeeded in past
- The Asian landscape - uncertainty in the near term
- Structuring considerations
- Risk allocation amongst parties
Prabhu Narasimhan, Counsel, White & Case
Peita Menton, Partner, White & Case
India's Union Budget for FY20 is a half prepared cocktail of Gandhi, Marx and Adam Smith. Not many previous attempts to make such cocktail have succeeded in past
The OECD’s FDI Regulatory Restrictiveness Index (FDI Index) measures statutory restrictions on foreign direct investment in 58 countries, including all OECD and G20 countries, and covers 22 sectors. This presentation by Stephen Thomsen describes the methodology used to calculate the FDI Index and how it is used as a tool for benchmarking countries, measuring reform and assessing its impact.
Read more at: http://www.oecd.org/investment/fdiindex.htm
Presentation slides from the webinar, "Actuarial Requirements for SMSFs", held on 26 March 2013. Webinar presented by Aaron Dunn from The SMSF Academy and Andy O'Meagher from Act2 Solutions.
Session outline included:
- the key requirements around a fund’s tax exemption and where an actuarial certificate is required;
- when an actuarial certificate is not required;
- How you can make the call on whether an actuary certificate is necessary;
- How tax exemption can be maximised in a financial year;
- Understanding when you should be using segregated or unsegregated methods; and
- Impact of proposed changes to legislation (tax exemption extending beyond death)
Webinar recording from the session can be purchased for $99 (incl. GST). Contact info@thesmsfacademy.com.au for further details.
Attached Newsletter is an attempt to cover monthly issues relevant in the context of transactions - covers SEBI, Companies Act, Income Tax, Stamp duty and other regulatory changes
Eastern Promise - a Guide for Retailers on Expansion in ChinaEversheds Sutherland
This presentation offers retailers a summary of the main legal and associated issues presented by expansion into China, and practical advice as to how best to deal with them.
Stephen Thomsen looks at investment climate reform in Southeast Asia and draws lessons for the update of the OECD Policy Framework for Investment currently underway. This presentation was made at the Southeast Asia Regional Forum in Bali, Indonesia, on 24-26 March 2014.
Find out more at http://www.oecd.org/daf/inv/investment-policy/seasia.htm - http://www.oecd.org/daf/inv/mne/pfi.htm - http://www.oecd.org/globalrelations/seaforum.htm
Investment policy reform in Myanmar, presentation by Aung Naing Oo, Director ...Carly Avery
Investment policy reform in Myanmar, presentation by Aung Naing Oo, Director General, DICA, Ministry of National Planning and Economic Development, Myanmar. October 2013.
With the onset of higher personal tax rates, more complex rules on the tax deductibility of interest and an election round the corner, now is the time to be thinking about structuring your tax affairs.
BDO ran a seminar for private equity executives that demonstrated:
- How to structure your fund
- How to plan during the life of your fund
- Latest techniques for structuring transactions
- Minimising VAT leakage
Find out more in the slides of the presentation.
Slides from IBSA Webinar - Double Tax Treaties: Asia & Europe which took place on 18 September 2014, presented by John Timpany of KPMG China and Roy Saunders of IFS Consultants. To view the webinar on demand, please visit our Bright Talk Channel at https://www.brighttalk.com/channel/11641
The OECD’s FDI Regulatory Restrictiveness Index (FDI Index) measures statutory restrictions on foreign direct investment in 58 countries, including all OECD and G20 countries, and covers 22 sectors. This presentation by Stephen Thomsen describes the methodology used to calculate the FDI Index and how it is used as a tool for benchmarking countries, measuring reform and assessing its impact.
Read more at: http://www.oecd.org/investment/fdiindex.htm
Presentation slides from the webinar, "Actuarial Requirements for SMSFs", held on 26 March 2013. Webinar presented by Aaron Dunn from The SMSF Academy and Andy O'Meagher from Act2 Solutions.
Session outline included:
- the key requirements around a fund’s tax exemption and where an actuarial certificate is required;
- when an actuarial certificate is not required;
- How you can make the call on whether an actuary certificate is necessary;
- How tax exemption can be maximised in a financial year;
- Understanding when you should be using segregated or unsegregated methods; and
- Impact of proposed changes to legislation (tax exemption extending beyond death)
Webinar recording from the session can be purchased for $99 (incl. GST). Contact info@thesmsfacademy.com.au for further details.
Attached Newsletter is an attempt to cover monthly issues relevant in the context of transactions - covers SEBI, Companies Act, Income Tax, Stamp duty and other regulatory changes
Eastern Promise - a Guide for Retailers on Expansion in ChinaEversheds Sutherland
This presentation offers retailers a summary of the main legal and associated issues presented by expansion into China, and practical advice as to how best to deal with them.
Stephen Thomsen looks at investment climate reform in Southeast Asia and draws lessons for the update of the OECD Policy Framework for Investment currently underway. This presentation was made at the Southeast Asia Regional Forum in Bali, Indonesia, on 24-26 March 2014.
Find out more at http://www.oecd.org/daf/inv/investment-policy/seasia.htm - http://www.oecd.org/daf/inv/mne/pfi.htm - http://www.oecd.org/globalrelations/seaforum.htm
Investment policy reform in Myanmar, presentation by Aung Naing Oo, Director ...Carly Avery
Investment policy reform in Myanmar, presentation by Aung Naing Oo, Director General, DICA, Ministry of National Planning and Economic Development, Myanmar. October 2013.
With the onset of higher personal tax rates, more complex rules on the tax deductibility of interest and an election round the corner, now is the time to be thinking about structuring your tax affairs.
BDO ran a seminar for private equity executives that demonstrated:
- How to structure your fund
- How to plan during the life of your fund
- Latest techniques for structuring transactions
- Minimising VAT leakage
Find out more in the slides of the presentation.
Slides from IBSA Webinar - Double Tax Treaties: Asia & Europe which took place on 18 September 2014, presented by John Timpany of KPMG China and Roy Saunders of IFS Consultants. To view the webinar on demand, please visit our Bright Talk Channel at https://www.brighttalk.com/channel/11641
Etude PwC Réussir vos investissements en Inde (2013)PwC France
http://pwc.to/1bFEiJI
Au cours des six derniers mois, le gouvernement indien a multiplié les initiatives pour relancer la croissance. Par ailleurs plusieurs développements juridiques et fiscaux sont susceptibles d'affecter les investissements en Inde des entreprises françaises.
If your expansion plans include India, you won’t want to miss this informative, free webinar to learn how to navigate it successfully.
The agenda includes:
In-country labor laws
Permanent establishment
Corporate structure models
Taxes - jurisdictions and categories
Employment - tax burdens, benefits and unions
Country specific HR concerns
and more ...
John P. Garcia, Targus Group International, Inc. - Speaker at the marcus evans Tax Officers Summit 2012, held in Las Vegas, NV, delivered his presentation entitled A Systematic Approach for Obtaining Foreign Tax Credits
MCI CLT Dutch Holding Structures EN (2021.03)Martin Kraeter
The various options of the Dutch Corporate Law with regards to Holding Structures. Reflecting on:
Dutch Participation (Deelnemingsvrijstelling)
Holding Subsidiaries
Tax Treaty Network
EU Withholding Tax Exemption
Dutch Finance Company (DFC)
Dutch Cooperative (DCOOP)
Stichting & STAK
Hybrid Holding
Martijn Steger, Vinita Bahri-Mehra and Martin G. Hu (Boss & Young) presented "Doing Business Internationally: Implications for Corporate Counsel" on February 23, 2006, for the Association of Corporate Counsel.
The presentation focused on the methods of conducting business internationally, special considerations in international agreements and recent legal developments in different global markets.
2. Investment Vehicle Options
Option 1 Option 2
• Buffer between
Parent Parent Parent and China
Co Co Operations
• Tax Optimization /
Profit Repatriation
• Future sale or
investment/
restructuring
Hold Co simplified
• Modern legal
structure and
Overseas Overseas mature rule of law
PRC PRC
WFOE WFOE
The JLJ Group All Rights Reserved - July 22, 2010 2
3. Investment Vehicle Options II
Substance Over Form
Option 2
• Effective Management Rule: If State Administration
Parent of Taxation (SAT) deems the offshore company’s day to
Co day management occurs within Mainland China, the
offshore company may be subject to corporate income
tax in Mainland China
• Reduced Tax Rate Exclusions: Offshore holding
companies with no substantive business activities may
not qualify for reduced withholding tax rates as per tax
Hold Co
treaties between the jurisdiction it is located and
Mainland China
Overseas • Indirect Transfer of Assets: an investor that has
structured its equity interest in a Mainland China
PRC enterprise through an offshore holding company could
be subject to an additional tax burden within China, in
the event that the investor sells interests in the
offshore company
WFOE
Don’t Forget to Consider Benefits Between the Hold Co and the Parent Company
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4. Withholding Tax on Dividends
Tax Treatment Countries Notes
• Applicable for investments of
0% Georgia 50% with a total investment of
EUR200 million
Kuwait, Mongolia, Mauritius, Slovenia, Jamaica,
Yugoslavia, Sudan, Laos, South Africa, Croatia,
5%
Macedonia, Seychelles, Barbados, Oman, Bahrain,
Saudi Arabia
Luxemburg, Korea, Ukraine, Armenia, Iceland,
• Must hold at least 25% of the
5% Lithuania, Latvia, Estonia, Ireland, Moldova, Cuba,
investment
Trinidad and Tobago, Hong Kong, Singapore
• Must hold at least 25% of the
7% Austria
investment
8% Egypt, Tunis, Mexico
10% Most other Countries
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5. Hong Kong Holding Company
• Tax rate: 16.5% income tax
• No VAT, Capital Gains, or Sales tax
• No withholding tax on dividends and interest
• Low country risk and strong rule of law
• Ease of disposal, acquisition and restructuring
Jurisdiction FDI 2009 (Billion)
Hong Kong US$54
Taiwan 6.6
Japan 4.1
Singapore 3.9
United States 3.6
The #1 source of FDI for China (32% YOY Growth)
The JLJ Group All Rights Reserved - July 22, 2010 5
6. Tax Categories
Category Description
Corporate Income Tax (CIT) • Applies to income derived from production, business operations, etc.
• Turnover tax on revenue from professional services provided, transfer of
Business Tax (BT) intangible assets, sales of immovable properties.
• Tax rate varies according to type of industry.
Value-Added Tax (VAT)
Customs Duty/Tariffs • Trade related taxes.
Consumption Tax
• 5% to 20% tax applying to income derived by a non-resident enterprise. Eg.
interest receipts, dividends, rentals received, royalties, capital gains, etc.
Withholding Tax
• Reduced rates available in countries with tax treaties signed, eg. Hong
Kong, Singapore, Mauritius, Barbados, etc
• Stamp Duty
• Real Estate Tax
Other Taxes • Vehicle Tax
• Surcharges: Education (3%), River maintenance (1% Shanghai Only), and
City Construction (7%)
The JLJ Group All Rights Reserved - July 22, 2010 6
7. Tax Compliance Timeline
Rep. Office LLC
Tax Registration Within 30 Day after License Issuance
Corporate Income Tax (CIT) Quarterly Quarterly
Business Tax (BT) Quarterly Monthly
VAT & Consumption Tax N/A Monthly
Annual Audit & Tax Clearance End of May
Annual Examination End of June
The JLJ Group All Rights Reserved - July 22, 2010 7
8. Rep. Office Restrictions
Prior to January 2010 New RO Current RO
May maintain current
Foreign
No Limit No more than 4 allowed Representatives but not
Representatives
additional Reps.
Effective Tax Rate 8.8% ~10.9% ~10.9%
Annual examination Renewal upon current
Duration of entity 3 years
required license expiration
Registration COI + Bank Statement
COI Authenticated N/A
Complexity Authenticated
Renewal
N/A COI Authenticated COI Authenticated
Complexity
Parent Company Must be a legal entity in Must exist for at least 2
N/A
Qualification home country years in home country
The JLJ Group All Rights Reserved - July 22, 2010 8
9. Taxation of Rep. Offices
A B C D E F G H
Operations Presumed Business CIT Tax Income Business CIT Total Tax
Expenses Profit Rate Tax Rate Rate Amount Tax Payable Payable
Payable
A/(1-B-C) ExC ExBxD F+G
8,000 15% 5% 25% 10,000 500 375 875
Formulas:
Presumed Income Amount = Operations Expense / [1 – Pres. Profit Rate 15% – Business Tax Rate]
Business Tax Payable = Income Amount x Business Tax Rate 5%
Corp. Tax Payable = Income Amount x Presumed Profit Rate 15% x Corp. Tax Rate 25%
For Most Rep. Office the Effective Tax Rate will be 10.9%
The JLJ Group All Rights Reserved - July 22, 2010 9
10. Business Tax
Revenue Source Tax Rate
• Communications & Transportations
Professional Services
• Construction
3%
• Posts & Telecommunications
• Culture & Sports
• Finance & Insurance
• Hotels & Travel Agencies
5%
• Restaurants
• Consulting
Entertainment Related Businesses 5% to 20%
Transfer of intangible assets 5%
Sales of immovable property 5%
Tax Payable = Business Turnover x Applicable Tax Rate
The JLJ Group All Rights Reserved - July 22, 2010 10
11. Value-Added Tax
Regular Rate:
17%
General
Taxpayer This category includes special goods
such as certain staples, books and
publications, certain gases and
Preferential agricultural goods and domestic
Rate: 7 to 13% logistics
Companies with
revenues exceeding
RMB 500k (production,
service) or RMB 800k
(wholesale, retail)
Small-Scale Unified Rate:
Taxpayer 3%
GTP Tax Payable = Current Output VAT – Current Input VAT
The JLJ Group All Rights Reserved - July 22, 2010 11
12. Incentive Programs
• 2009 economic downturn spurred many local governments
to provide additional incentives for establishing your FIE
within their jurisdiction
Recognizing encouraged statuses before official approval
Reduced rates for local portion of tax
2/3 Tax Holidays
Reduced fees for land-use rights
Subsidized rentals and expat housing
• Local incentive programs, once secured, may be tenuous at
best
Special Incentives should not be the only priority in choosing a location
The JLJ Group All Rights Reserved - July 22, 2010 12
13. Preferential Tax Treatment
Industries / Projects Tax Rate
High-Tech, New-Tech, Clean-Tech Enterprises
15% CIT
Small-scale Enterprises with low profitability 20% CIT
Income Derived from Certain Industries
• Agriculture, forestry, animal husbandry or fishery
projects
Tax Exemption
• Investment in or operation of certain public
or Reduction
infrastructure projects
3+3 Tax Holidays
• Qualified environmental protection and conservation
projects
• Technology transfer projects
Enterprises located within certain ethnic autonomous Tax Exemption
regions (subject to approval from the People’s
government of the relevant regions) or Reduction
Encouraging High-tech, New-tech, Clean-Tech and Offshore Outsourcing services
The JLJ Group All Rights Reserved - July 22, 2010 13
14. PERSONAL INCOME TAX
• Full tax amount deducted from employee’s salary
• Employer submits the amount to tax bureau
• For Local Employees
IIT = [Gross Salary – Social Benefits – 3,500 RMB] x Tax Rate – Quick
Deduction
• For Foreigners liable to tax contributions
IIT = [Gross Salary – Allowances – 4,800 RMB] x Tax Rate – Quick
Deduction
• Reasonable Allowances (for Tax Exemption)
Housing, Meals and Laundry
One-off Relocation costs
Business trip both inside and outside of PRC
Expatriate’s language training, Children’s education
Home leave for expatriate
Employer Must Pay IIT On Behalf of Employees
15. PERSONAL INCOME TAX
Current IIT Regime New IIT Regime (Sept. 1st 2011)
Tax Quick Tax Quick
Taxable Amount Taxable Amount
Rate Deduction Rate Deduction
Less than 500 5% 0 Less than 1,500 3% 0
501 – 2,000 10% 25 1,501 – 4,500 10% 105
2,001 – 5000 15% 125 4,501 – 9,000 20% 555
5,001 – 20,000 20% 375 9,001 – 35,000 25% 1,005
20,001 – 40,000 25% 1,375 35,001 – 55,000 30% 2,755
40,001 – 60,000 30% 3,375 55,001 – 80,000 35% 5,505
60,001 – 80,000 35% 6,375 Over 80,000 45% 5,505
80,001 – 100,000 40% 10,375
Over 100,000 45% 15,375
Employees with a salary of 38,600 will see an increase in taxes
16. General Tax Rule for Foreign Employees
• Criterion used to determine a foreign employee tax liability in China is the duration of stay and the
employee’s position.
• Foreign employees who have resided in China for 5 years are taxed on their worldwide income