1. Tax Free for Self-operational Trade

If the representative office only engages in communication, preparation and assistance of self-operational trade such as business information gathering, its parent company directly signs contract with Chinese enterprise. With the contract or invoice, the profit made from the difference between buying and selling prices, and other income can be tax-free after local tax authority’s approval.

 

2. Definition on the Taxable Earnings in Case the Parent Company Engages in One Business Together with the Representative Office

If the representative office can provide documents proving that some procedures of its business are operated outside of China, approved by local tax authority, its Chinese taxable earning can be calculated according to 50% of its income.

 

3. Special Regulations on Advertising Agency

Representative office engages in advertising service, with no clear definition of the service fee in the contract, or the tax payer cannot provide documents proving actual profit, 15% of the turnover on the contract can be considered as the profit.

 

1.  Payments to staff within or outside of China

① Salary, wage, allowance, welfare

② Purchase costs

③ Communication costs

④ Traveling costs

⑤ Rent

⑥ Equipment rental fees

⑦ Transportation fee

⑧ Social intercourses

Note: A proving document signed by the parent company’s certified public accountant is needed for the expenses spent outside of China.

 

2. Representative Office’s Payment in Advance for the Parent Company

① Expenses paid in China on samples and transportation for the parent company;

② Expenses paid on storage and Customs application in China for Samples imported;

③ Translation fee for staff of parent company visiting China;

④ Expense paid on bidding documents when the parent company wants to bid for a certain project in China;

⑤ Various expenses paid during the parent company’s staff’s visiting China on a business trip.

 

3. The interest on deposit cannot be used to write down the amount of the spent expenses of the representative office.

 

1. Representative office of foreign companies in China engaged in the business by acting as an intermediate to obtain the rebate of income, if the contract specifies that the income is collected separately by the representative office and the Chinese domestic enterprise, with the documents, certificates proving its payment to the Chinese domestic enterprise, this payment is permitted to be disbursed from the expenses before tax paying.

 

2. Advanced Expenses for the Parent Enterprise as follows:

① Advance disbursement for staff invited to visit China by the parent enterprise;

② Advance expenses on accommodations, transportation and social activities for staff from parent company visiting China.

③ Expenses spent on exhibition in China held by parent company.

④ Place rent payments for business talk and non-contract related seminars held in China by the parent company;

⑤ It needs to be registered for the parent company to sell special commodity to China, The registry expense paid in advance by the representative office for the manufacturer and the advertisement expense paid in advance for companies other than its parent company, with documentary evidence, can be considered not as part of fee spent by the representative office;

⑥ Penalties paid in advance for the parent company where there’s violation in contract with Sino parties;

⑦ Deposit and margin with the Customs shall be paid (as advance disbursement) by the representative office when the parent company needs to export certain tools into China in order to provide labor service.

 

3. Various late payment and penalty of taxation does not need to be listed as expenses.

The representative office needs to pay foreign enterprise income tax and business tax, but in a different way. The most common way is based on additional costs. For example, in Apr. 2002, the payable tax is about 10% of the expenses spent by the representative office. The income tax and business tax of the enterprise is charged in 15 days before each quarter ends. If certain requirements are met, the representative office can make duty-free application. In this case, the duty-free party must be a foreign manufacturer.

    The formula is:

    Income= Expenses/ (1-Approved Profit Margin Rate10%-Sales Tax Rate5%)

    Sales Tax= Income* Sales Tax Rate5%

    Income Tax= Income* Approved Profit Margin Rate10%* Income Tax Rate 25%