Chengdu is the capital
of the Sichuan province and is situated on the Western edge of the Sichuan
Basin. This capital city serves as the economic, financial and commercial
center of Southwest China. More than 15 million people live in Chengdu. The
province of Sichuan is known to tourists for its spicy food. Chengdu is famous
for their cute habitants: The Panda. Economically, it is ranked as the 15th most
competitive city in China. The ranking will probably move up quickly, as
experts estimate that Chengdu will soon be upgraded from a Tier 2 to Tier 1
city. The growth which makes the Tier upgrade possible, is fueled by
infrastructure and connectivity investments like the OBOR initiative and the
Chengdu – Poland railway connection.
When investors have plans on establishing representative office in Chengdu,
it is better for them to acquire more information in order to run a successful
business in Chengdu China
Chengdu Representative Office Setup-Procedures
Preparing all the needed documents→ fill out the application form→ sign the agreement with TCBC→ pay for the services→ submit all the needed documents→ name reservation→ apply for the business license and work card→ go to the public security bureau for stamp-make→ apply for Organization Code License & card→ apply for Setup license of the Local & National Taxation Bureau.
An RO has no legal personality, meaning it does not possess the capacity
for civil rights and conduct, cannot independently assume civil liability, and
is limited in its hiring ability. Chinese staff working for an RO, although not
limited in number, must be employed through a human resources agency that will
sign a contract with the RO on the one hand and with the Chinese staff on the
other in order to ensure social security and housing fund contributions are
paid on a regular basis. No more than four foreign employees can be hired per
RO. Foreign staff working for ROs should have an employment relationship with
the parent company abroad, and any disputes should be settled under the laws of
that country
Recent Updates to setting up a Rep Office in Chengdu China,
The new restrictions
The January 2010 notice states that some rep offices have been operating
outside of the restrictions—specifically, changing registration items without
authorization, submitting false supporting registration documents, and
conducting business operations illegally. The notice thus sets out several
provisions to strengthen the administration of rep offices.
Registrations, renewals, and changes
A new provision in the notice states that foreign companies applying to
establish a rep office in China must have been in existence for at least two
years, as evidenced by an apostilled certificate of incorporation. This means
that foreign companies must use established vehicles, rather than incorporate
new SPVs, to handle their rep office operations. The notice also requires foreign
companies to obtain and provide new apostilled certificates of incorporation
each time they apply to renew their rep offices’ registration certificates—a
potentially onerous process—and requires rep offices to renew their
registration certificates every year.
Number of representatives
In addition to stricter registration and renewal requirements, the notice
creates new bureaucratic hurdles for rep offices’ operations. Specifically, it
limits the number of representatives that a company may appoint to four
individuals, including the office’s chief representative. (Previously, there
were no explicit limits on the number of representatives that a foreign company
could appoint.) Existing rep offices that have more than four representatives
may not appoint additional representatives, though the notice does not specify
whether such offices must reduce this number to comply with the new rules. One
local SAIC official in Beijing indicated that reduction would likely be
unnecessary unless a rep office applies to SAIC to make changes to its
registered representatives. (In addition to SAIC’s registration requirements,
the PRC government has found practical ways to enforce the rule, such as
refusing to issue visas or work permits to foreign employees of rep offices
that have more than four registered representatives.) The notice also does not
specify whether the restrictions would apply to rep offices of companies in
industries that require regulatory approval. Local SAIC officials have provided
different answers to this question, likely because of the limited number of
registration applications that have been received since the notice was issued.
Spot checks
The notice states that local SAIC branches will perform spot checks on rep
offices within three months after the registration certificates are issued. Rep
offices found engaging in direct operations may be subject to administrative
fines, and those discovered to have moved without updating their registered
addresses or operating without valid registration certificates may be subject
to increased scrutiny by the authorities.
Is a rep office still worth it?
Though rep offices have no capitalization requirements, some foreign
investors have long debated whether opening a rep office was worth the time and
effort due to the limited scope of its permitted business activities. Given the
recent tighter restrictions on rep offices, more companies may begin their
China operations with a WFOE, which can conduct revenue-generating activities
directly. Furthermore, increased localization of approval procedures and
decreased capital requirements have made establishing a WFOE less onerous.
Setting up a rep office may thus be the best choice for a foreign company
that is mainly interested in promoting its overseas products and services and
establishing networking relationships between Chinese businesses and their
overseas operations. In addition, for some entities—such as foreign law firms
and certain nonprofit organizations—a rep office may be the only option for
conducting their China operations.
Many foreign companies are finding that the question is not simply whether
they should set up a WFOE or a rep office, but rather how they can best take
advantage of the vehicles available for foreign investment through a
multifaceted approach. Because various investment vehicles and industries are
subject to different regulations and authorities, a foreign company may find it
advantageous to set up multiple rep offices, WFOEs, and Sino-foreign JVs. The
different permitted business scopes of these various investment structures may
allow companies to conduct more business in China. The correct approach for
investing in China largely depends on the particular industry and the specific
goals of the company.
Recent Updates to Representative Office Tax Law
The PRC government earlier this year issued new measures that promise
significant changes to how foreign representative (rep) offices calculate and
file taxes in China. The changes bring China’s law on rep office taxes in line
with the 2007 PRC Enterprise Income Tax (EIT) Law and may subject rep offices
to new tax requirements and potentially higher tax burdens.
According to the Provisional Measures for Foreign-Enterprise
Representative Office Tax Administration, which were released by the PRC State
Administration of Taxation in February 2010 and took effect retroactively from
January 1, 2010, foreign rep offices must now declare and pay income, business,
and value-added taxes on income attributable to the rep office. Previously, rep
offices could negotiate EIT exemptions with local tax bureaus on the basis that
their rep office activities did not generate revenue. Under the new measures,
local tax bureaus can no longer accept new rep office applications for EIT
exemptions and must re-evaluate the applications of rep offices that enjoy
existing exemptions. Only rep offices that have protection under a relevant
double tax agreement may be considered for EIT exemptions.
The measures also clarified tax registration procedures for rep office
staff and offered three formulas to calculate tax liability, depending on how
complete the rep office’s financial records are:
◾Actual amount method Used when the rep office has kept complete records of its expenditures and revenue, this method is comparable to the tax calculation standard laid out in the EIT Law. (Though rep offices typically do not engage in traditional profit-making activities, income has been assessed—and tax levied—based on the services they provide.)
◾Actual-revenue-deemed-profit method The tax authority will use this method when the rep office has kept complete records of its revenue but not its expenditures. The reported revenue is multiplied by the tax rate and a “deemed profit rate,” which can be no less than 15 percent.
◾Cost-plus method This method is used when the rep office has kept complete records of its expenditures but not its revenue. In this case, the tax authority will generate a figure to indicate revenue: Revenue = expenditures / [1 – deemed profit rate – tax rate].
◾Actual amount method Used when the rep office has kept complete records of its expenditures and revenue, this method is comparable to the tax calculation standard laid out in the EIT Law. (Though rep offices typically do not engage in traditional profit-making activities, income has been assessed—and tax levied—based on the services they provide.)
◾Actual-revenue-deemed-profit method The tax authority will use this method when the rep office has kept complete records of its revenue but not its expenditures. The reported revenue is multiplied by the tax rate and a “deemed profit rate,” which can be no less than 15 percent.
◾Cost-plus method This method is used when the rep office has kept complete records of its expenditures but not its revenue. In this case, the tax authority will generate a figure to indicate revenue: Revenue = expenditures / [1 – deemed profit rate – tax rate].
This figure will then be multiplied by the determined profit rate and tax
rate to calculate tax liability.
The cost-plus and actual revenue-deemed-profit methods empower local
bureaus to determine the formula that rep offices must use to calculate their
income tax liabilities, using the all-important deemed profit rate. The new
measures increased the minimum rate from the previous 10 percent to 15 percent.
Because 15 percent is a base rate, however, local tax bureaus may have the
discretion to apply a deemed profit rate that is even higher. The new rules
thus create a strong incentive for rep offices to keep accurate records of their
revenue and expenditures to avoid using the deemed-amount method to calculate
tax liabilities.
No comments:
Post a Comment