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Q:
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What is a "resident representative office of a foreign enterprise"?
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A:
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Resident representative offices of foreign enterprises (hereinafter referred to as representative offices) refer to resident representative offices established by foreign enterprises (including Hong Kong, Macao and Taiwan enterprises) and other organizations in accordance with relevant regulations of the State Council, registered with the administrative department for industry and commerce or approved by relevant departments. Representative offices do not have legal personality.
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Q:
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Does a representative office need to pay VAT?
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A:
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Whether a representative office need to pay VAT is relating to the fact that if it is allowed to carry out business operation legally and to obtain business income, and also relating to the understanding of its competent tax authority in VAT taxable income.
Most representative offices are not allowed to carry out business operation and thus have no business income; minority of representative offices, such as representative offices of foreign law firms, are allowed to carry out business operations and obtain business income. Besides, different local tax authorities have different understanding in VAT. Some local tax authorities (such as Beijing Tax Administration) think that those representative office not carrying out business operations have zero VAT taxable income, and thus no need to pay VAT. Others (such as Shenzhen Tax Administration) think representative offices should pay VAT on their income no matter if they obtain business income.
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Q:
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Does a representative office need to pay enterprise income tax?
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Yes.
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How should a representative office calculate enterprise income tax payable?
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A:
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Those representative offices which have established sound accounting books should accurately calculate their taxable income and tax payable and declare enterprise income tax to competent tax authority on an actual basis.
For those representative offices without sound accounting books and not able to accurately calculate income or costs and not able to declare income tax on an actual basis, tax authorities have the right to assess their taxable income on a deemed basis using the following two methods:
Converting expenditure to income;
Determining the taxable income based on total income.
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Q:
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How should a representative office convert expenditure to income?
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The method of converting expenditure to income is applicable to those representative offices which are able to accurately calculate expenditure but unable to accurately calculate income or costs.
Formula: Taxable income = current period expenditure/(1 – deemed profit margin) ×deemed profit margin
The expenditure of a representative office includes wages and salaries, bonuses, allowances, welfare, purchase expenses (including vehicles, office apparatuses and other fixed assets), communication fees, travelling expenses, rents, apparatus leasing fees, transportation fees, entertainment fees and other charges.
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Q:
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How should a representative office determine the taxable income based on total income?
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A:
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The method of determining the taxable income based on total income is applicable to those representative offices which are able to calculate income but unable to calculate costs.
Formula: Enterprise income tax = total income ×deemed profit margin × tax rate
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Q:
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Where the method of determining taxable income on a deemed basis is applied to the representative office, what is the deemed profit margin?
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A:
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The deemed margin shall not under 15%.
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FAQ
