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FAQs of China Taxation

FAQs of China Taxation(11)

FAQs of China Company Tax Registration

Q:
What is the time requirement for processing tax registration?
A:
It is required to submit the tax registration to competent tax authority with holding of relevant supporting documents within 30 days from the date of approval for business license.
Q:
How can I process the tax registration regarding cessation of business?
A:
Taxpayer who pays tax regularly in fixed amount shall place the "Cessation of Business Application" with competent tax authority, and after approval, receive the Notice of Approval of Cessation of Business. Other taxpayers need not process application, they shall only make zero filing.
Q:
How can a business process resumption tax registration?
A:
With the completion the "Form of Receiving Resumption Document" and returning the Notice of Approval of Cessation of Business, business will be resumed after the approval of competent tax authority.
Q:
Does enterprise setting up of branches require to process tax registration? Can it be applied for by a plain invoice?
A:
Yes. It needs to process tax registration. The company shall also bring all of its Industrial & Commercial Business License, parent company information, ID card of corporate representative of parent company and other documents to process at tax bureau. Enterprises with a branch of independent accountability shall report its financial statements to local tax bureau and apply for plain invoice.

FAQs of Tax Invoice

Q:
How can the authenticity of invoice be identified speedily?
A:
The authenticity of invoice can be identified by the following features:
  • The invoice title and body shall be both in Block Letters
  • The words "Accounts Copy" after normal completion shall show in purple colour
  • Each copy shall be in an 8-digit number, in Gothic typeface
  • The column of amount in words of the invoice shall apply the printing colour of invoice body and overprint colour bar
Q:
Do gratuitous donations of goods require special invoice?
A:
Yes. Goods donated to general VAT payer will be issued VAT special invoice on demand of the donee.
Q:
Can my company, being a small-scale taxpayer, issue VAT special invoice?
A:
Small-scale taxpayer can apply for VAT special invoice to competent tax authority.

FAQs of Value-added Tax

Q:
Can a small-scale taxpayer Input VAT tax with issuing VAT special invoice?
A:
Yes. The tax rate of such invoice is at 3%. General taxpayer will take this special invoice as deduction certificate.
Q:
Can foreign investment enterprise, being small-scale taxpayer, purchase domestic equipment with VAT refund?
A:
Yes. Domestic equipment purchased by non-VAT payers, small-scale taxpayers as well as foreign investment enterprises set up in bonded area, in compliance with relevant requirements (GSF (1999) No. 171), can process tax refund.
Q:
Can my company, being retail enterprise with annual turnover about RMB2.1 million, refuse to apply for the qualification of general taxpayer?
A:
No. According to requirements, enterprise with annual turnover above RMB0.8 million will apply to tax bureau to become general taxpayer.
Q:
Can plain invoice be used to credit Input VAT?
A:
No. VAT special invoice recognized by the Tax Law can only be used to credit Output VAT, but the amount of plain invoice can be included in purchase cost.
Q:
Can the exported goods of small-scale taxpayer be entitled to tax refund?
A:
According to prevailing policies concerning tax rebates (exemptions) for exported goods, the goods exported by small-scale taxpayers on their own or on consignment shall be free of VAT, consumption tax but without refund.
Q:
How can I apply for the qualification of general taxpayer which can issue VAT special invoice?
A:
Application for general taxpayer VAT special invoice shall fulfil the following conditions:
  • Industrial enterprise with annual taxable sales value no less than RMB0.5 million
  • Commercial enterprise with annual taxable sales value no less than RMB0.8 million
  • Enterprise with a sound accounting and auditing system and purchased anti-counterfeiting tax control equipment

FAQs of Export Tax Refund

Q:
What is the current rate of VAT rebate on exported goods?
A:
Tax refund rate can be differentiated into six categories of 17%, 13%, 11%, 8%, 6%, and 5% according to different goods.
Q:
When shall enterprise empowered to manage import/export process export tax rebate (exemption) process confirmation?
A:
Enterprise shall process export tax rebate (exemption) confirmation with competent tax authority within 30 days after filing and registration with foreign trade & economic department.
Q:
What are the requirements for newly-opened productive enterprise to process "Exemption, Credit and Tax Rebate" for exported goods?
A:
The refundable tax accrued within 12 months from the first export transaction of newly-opened productive enterprise shall be refunded per month but carried forward to next transaction to continue crediting the tax payable on domestic sales. 12 months later, enterprise being small-scale export-oriented enterprise, shall perform as required on small-scale export-oriented enterprise. Enterprise other than small-scale export-oriented enterprise will calculate process "Exemption, Credit and Tax Rebate" per month, except in the two following cases:
  • Enterprise registered more than one year ago which creates new export business (other than small-scale enterprise), after being verified by the municipal tax bureau to be competent of productive capacity and without violation of law, will process "Exemption, Credit and Tax Rebate" per month; and
  • Newly-opened productive enterprise, whose domestic and export sales value amount to more than RMB5 million and export sales account for more than 50%, will apply to provincial tax bureau for calculation of "Exemption, Credit and Tax Rebate" per month.
Q:
How can I process "Exemption, Credit and Tax Rebate"? What is the standard of small-scale export-oriented enterprise?
A:
The refundable tax accrued during the year of small-scale export-oriented enterprise with a period of 12 months under review for tax refund, shall not be refunded per month but carried forward to next period to continue crediting the tax payable on domestic sales of goods, and processed refund of tax remaining after crediting at year end in one stroke.
According to the State Administration of Taxation, the standard of small-scale export-oriented enterprise shall be determined by the State Administration of Taxation of each province in reference to proper reality of each on a basis of the enterprise's domestic and export sales value in aggregate of a taxable year, ranging from RMB2 million to RMB5 million, for example, the standard of small-scale export-oriented enterprise in Guangdong province is below RMB3 million of domestic and export sales value in aggregate.
Q:
Can the goods exported by small-scale taxpayer on their own, or on consignment, process export rebates?
A:
The goods exported by small-scale taxpayer on their own or on consignment, shall continue to perform tax-free policy, without crediting or rebating its Input Tax. The goods purchased by export-oriented enterprise from small-scale taxpayer for exportation are permitted tax rebates, if the rate of export rebates is 5%, the rate of rebates will be at 5%; if the rate of export rebates is above 5%, the applicable rate is 6% in any case.

FAQs of Consumption Tax

Q:
In which link shall Consumption Tax be collected?
A:
Consumption Tax shall be collected in one specific link, generally in the production, processing dealing and importation link of taxable consumption goods, except for gold and silver jewellery, diamonds and diamond ornaments, which shall be taxed in retail link.
Q:
Which commodities are subject to Consumption Tax?
A:
The following commodities are subject to Consumption Tax:
  • Cigarettes
  • Alcoholic drinks and alcohol
  • Cosmetics
  • Golf and equipment, high-grade watches, yacht, wooden disposable chopsticks, hardwood flooring
  • Precious jewellery and precious gems
  • Firecrackers and fireworks
  • Product oils
  • Motor vehicle tires
  • Motorcycles
  • Saloon cars

FAQs of Business Tax

Q:
Does enterprise which lends money to others and collects interest, need to pay Business Tax in banking and insurance industry?
A:
Enterprise which lends money to others and collects interest, incurs tax obligation in banking and insurance industry, so it shall pay Business Tax.

FAQs of Investment Enterprise Income Tax

Q:
Shall the financial statements submitted in the annual declaration of Investment Enterprise Income Tax be audited by the Certified Public Accountant?
A:
Enterprise shall report Income Tax Return and financial statements to competent tax authority during the period as regulated by Tax Law, whether making profits or losses in taxable year. In reporting the financial statement, auditor's report by Chinese CPA should be attached.
Q:
How can enterprise subject to half reduction of Income Tax prepay said quarterly Income Tax?
A:
Corporate Income Tax shall be prepaid quarterly (prepaid within 15 days from the end of quarter), and calculated by year (settled within 5 months from year end), with refund for any overpayment or a supplemental payment for any deficiency. Foreign investment enterprise prepaying quarterly Corporate Income Tax shall use profits of this year to cover the losses incurred by the enterprise during the previous year at first, and prepay quarterly Corporate Income Tax payable on the profits after covering losses at applicable tax rate later. Therefore, enterprise who is entitled to half reduction of Corporate Income Tax shall prepay quarterly Income Tax at the half reduced tax rate.
Q:
Is there any time limit for reporting financial statements?
A:
The reporting time limit: quarterly reporting within 15 days from the end of quarter, and annual reporting within 4 months from each year end.
Q:
Need foreign enterprise which charges consulting fee on enterprises in China pay Income Tax?
A:
Yes. Foreign enterprise without establishment in China shall pay Corporate Income Tax at 10% tax rate.
Q:
Can the loss incurred by foreign investment enterprise in one year be deducted from the profits in subsequent years?
A:
In following two cases:
  • Covering the loss incurred by only one company:
    The loss can be deducted from the profits of next taxable years consecutively up to 5 years. Loss of previous year shall be covered before quarterly Corporate Income Tax is prepaid from the remaining profits (if any) after covering the loss.
  • Covering the loss incurred by more than one company:
    Enterprise with combined Income Tax reporting and paying will involve different tax rates applicable to more than one company which calculate their tax payable at their own tax rate respectively, therefore, the loss incurred by some company will be covered by the profits of other company at the same tax rate (if any), or covered by the profits of other company at similar tax rate.
Q:
What are the requirements for foreign investment enterprise to settle the Income Tax?
A:
Enterprise shall report the annual statement of Corporate Income Tax to competent tax authority within 4 months after year end, and deduct the prepaid Income Tax from the yearly actual tax payable and verify the tax payable in supplement. The competent tax authority will carry out a general audit on the annual return and relevant information of the enterprise within 5 months from the year end, and profess the issues of the enterprise's annual Income Tax for refund for any overpayment or a supplemental payment for any deficiency.
Q:
Shall the travel allowance of employee on business trip be subject to individual income tax?
A:
Yes. Travel allowance to employee by the enterprise is generally treated as salary.
Q:
Can the personal casualty insurance contributed by the company for employees be deducted before tax?
A:
Only statutory insurance in China can be deducted before tax.
Q:
Can parent company of foreign investment enterprise charge its branches in China for administration cost?
A:
Yes. But the charge shall not be more than 2% of its gross profits, and it is necessary for the parent company to file application to the competent tax authority by the end of October each year.
Q:
How to process the VAT of "Processing and Assembly" Enterprise?
A:
"Processing and Assembly" Enterprise can process "Tax-free Certificate for Processing & Assembly" with the tax authority competent for export tax rebates, by virtue of imported goods declaration and registration handbook for processing & assembly reviewed and signed by customs, then the enterprise holding this Certificate can declare process exemption from VAT and Consumption Tax payable on its processing or processing deal of goods, with the tax authority in charge of taxation. After exportation of goods, enterprise shall process cancellation after verification with the tax authority in charge of export tax rebates by virtue of exported goods declaration for processing & assembly as well as the registration handbook for processing & assembly cancelled after verification by customs.
Q:
What taxes payable are involved in "Processing and Assembly" Enterprise?
A:
Taxes payable include: Foreign Investment Enterprise and Foreign Enterprise Income Tax, VAT, Consumption Tax, Stamp Duty, Real Estate Tax and Vehicle and Vessel License Tax, Individual Income Tax (personally paid). The first three items of taxation are levied by national tax department, and the rest falls in the collection of local tax department.
Q:
Does foreign investment enterprise need to pay "local educational surcharge"?
A:
Yes.

FAQs of Foreign Representative Office

Q:
How to calculate Income Tax for representative office established in Shenzhen?
A:
Computation of Income Tax:
  • Income = Appropriation Expenditure of Current Period / (1 - Appraised and Specified Rate of Profit 10% - Sale Tax Rate 5%)
  • Corporate Income Tax Payable = Profits × Appraised and Specified Rate of Profit 10% × Corporate Income Tax 25%
Q:
What expenses are included in the appropriation expenditure in computation of profits?
A:
They are: salary, bonus, allowance, welfare expenses, purchase costs of articles (including motors, office equipment and other fixed assets), communication cost, travel charge, house rent, equipment lease cost, cost of travel, entertainment expenses and other operation cost paid to employees in China and abroad.
Q:
Can interest income offset appropriation expenditure?
A:
Interest income shall not offset appropriation expenditure, and the actually accrued expenditure shall be taken in account in computing revenue before tax.
Q:
Can the fixed assets of representative office be depreciated?
A:
If the representative office has complete financial records, its fixed assets can be depreciated monthly.
Q:
Which expenses of representative office are not included in the appropriation expenditure?
A:
  • The airfare expenses for relevant personnel advanced by resident representative office for the purpose of visiting parent company by invitation
  • Board and lodging expenses, cost of travel as well as entertainment expenses, advanced by resident representative office when parent company visits China by delegation
  • Related expenses advanced by resident representative office when the head office holds large-scale exhibit in China
  • Late fee and fine on various taxes payable by representative office
  • Donations in nature of public welfare or relief used in cash by representative office in China
Q:
Shall the usage of properties owned by parent company for office address free of charge be treated as appropriation expenditure taken in account in computation of revenue before Business Tax?
A:
Representative office which uses the properties owned by parent company for office address shall pay Business Tax on the basis of rent computed from the dealings between independent enterprises.

FAQs of Real Estate Tax

Q:
How to compute Real Estate Tax?
A:
The original value or rental of taxpayer's house property, whether for self-purpose or letting, shall be taken into account when computing Real Estate Tax.
Q:
What is the rate of Real Estate Tax?
A:
There are several computing modes of Real Estate Tax (Detail: "Real Estate Tax".)

FAQs of Land Value Added Tax

Q:
What expenses of taxation are payable on transactions of second-hand properties in Shenzhen?
A:
Expenses of taxation payable include:
  • Business Tax, 5% of selling price (tax-free upon sale of common house purchased by individual person and inhabited for more than 5 years; those inhabiting less than 5 years shall be taxed on the basis of entire selling price, while uncommon house shall be taxed by price difference)
  • Urban Maintenance and Construction Tax, 1% of Business Tax
  • Stamp Duty, 0.05% of selling price
  • Individual Income Tax at 20%, Corporate Income Tax at 25%
  • Formula: Income Tax = Selling Price – Original Price – Business Tax - Urban Maintenance and Construction Tax – Stamp Duty – Land Value Added Tax
  • Deed Tax, 1.5% or 3% of selling price
  • Land Value Added Tax , from 30% to 60%

FAQs of Individual Income Tax

Q:
How to compute Individual Income Tax of Hong Kong resident who provides services both in China and Hong Kong ?
A:
Hong Kong resident, who works only in mainland and gets paid and need not provide any service back in Hong Kong, shall pay individual income tax on the income earned by provision of service in mainland, whether the income is paid or borne by domestic office or overseas employer (including Hong Kong employer).
Q:
How to compute Individual Income Tax payable by Hong Kong resident who is employed to work in mainland by Hong Kong employer for more or not more than 183 days?
A:
The employee, who stays in mainland consecutively or accumulatively for not more than 183 days, shall pay tax for the number of days staying in mainland in respect of the salary paid or borne by mainland company after computing the tax payable. The portion of salary paid by overseas employer (including Hong Kong employer) shall not be subject to tax.
The employee, who stays in mainland consecutively or accumulatively for more than 183 days, shall pay tax for the number of days staying in mainland in respect of the total salary received from both mainland company and overseas employer (including Hong Kong employer), after computing the tax payable.
Q:
Need foreign national pay Individual Income Tax on director's emolument received in China?
A:
Yes.
Q:
Where shall foreign national pay tax on salary received in China?
A:
The Individual Income Tax will be declared and paid by the employing enterprise on behalf of the foreign national.
Q:
Does the number of days working in China include public holidays?
A:
The number of working days of foreign national employed in China shall include public holidays enjoyed in China.

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