Meaning
Administrative tax circulars issued by the Chinese State Taxation Administration govern the tax assessment and registration of representative offices operated by foreign companies. The circular guoshuifa 2010 number 19 establishes the taxation rules and filing obligations for these representative offices. This administrative measure ensures that even non profit or auxiliary offices pay enterprise income tax on a deemed profit basis.
Taxation Method
Calculation of tax liability under these rules depends on a deemed profit margin that the tax authority applies to the operating expenses of the office. The circular guoshuifa 2010 number 19 mandates a deemed profit rate of not less than fifteen percent for representative offices. Foreign entities must report all local expenses including salaries, rent and travel to determine their tax base.
Local tax bureaus use these expense reports to calculate both enterprise income tax and value added tax.
Operational Impact
Representative offices must maintain proper accounting books and report their actual revenues to the local tax bureau. If an office fails to submit accurate records, circular guoshuifa 2010 number 19 allows the tax authority to assess tax based on expenditures.
Compliance Procedure
Registration procedures require foreign parent companies to submit annual audits and operation reports to the administration for market regulation. The rules under circular guoshuifa 2010 number 19 demand close cooperation between market regulators and tax authorities to monitor foreign representative offices. Failure to comply with these filing requirements results in fines or the revocation of the office business license.
