Tentative Measures for the Tax Administration of Resident Representative Offices of Foreign Enterprises

(Issued by the State Administration of Taxation on February 20 2010 and effective as of January 1 2010.)

Guo Shui Fa [2010] No.18

Article 1: These Measures have been formulated pursuant to the PRC Law on the Administration of the Levy and Collection of Taxes (Tax Levy Law) and its Implementing Rules, the PRC Enterprise Income Tax Law and its Implementing Regulations, the PRC Tentative Regulations on Business Tax and their Implementing Rules, the PRC Tentative Regulations on Value-added Tax and their Implementing Rules, and relevant tax laws and regulations in order to regulate the administration of the taxation of resident representative offices of foreign enterprises.

Article 2: For the purposes of these Measures, the term “resident representative office of a foreign enterprise” means a resident representative office established in China by a foreign enterprise (including enterprises from Hong Kong, Macao and Taiwan) or other organisation in accordance with relevant State Council regulations and registered with the administration for industry and commerce or approved by the relevant authority (a Representative Office).

Article 3: A Representative Office shall file and pay enterprise income tax on income attributable to it in accordance with the law and file and pay business tax and value-added tax on its assessable revenue in accordance with the law.

Article 4: A Representative Office shall carry out tax registration procedures with the competent tax authority of the place where it is located on the strength of the documentation set forth below within 30 days from the date of receipt of its business registration certificate (or approval from the relevant department):

(1) the original and a photocopy of the duplicate of its business licence or of the approval document from the competent department;

(2) the original and a photocopy of the duplicate of its organisation code certificate;

(3) the original and a photocopy of the proof of its registered address and business address (i.e. title certificate or lease agreement); if it owns the property, the original and a photocopy of the lawful proof of title, such as a title certificate or sale and purchase contract; if it leases premises, it shall provide the original and a photocopy of the lease agreement, and if the lessor is a natural person, it shall additionally provide the original and a photocopy of the proof of title);

(4) the original and a photocopy of the passport or other lawful identity document of the chief representative (person in charge);

(5) the relevant resolution documents of the foreign enterprise on the establishment of the Representative Office and a list of its other Representative Offices established in China (which shall include their names, addresses, contact information, names of the chief representatives, etc.); and

(6) other documentation that the tax authority requires be provided.

Article 5: If a change in its tax registration particulars occurs, or if its residence term expires or it terminates its business activities early, a Representative Office shall carry out the procedures for the amendment of tax registration or de-registration procedures with the competent tax authority in accordance with the Tax Levy Law and relevant provisions. Before a Representative Office carries out de-registration procedures, it shall file and pay enterprise income tax with and to the competent tax authority in accordance with the law on its liquidation income.

Article 6: A Representative Office shall keep account books in accordance with relevant laws, administrative regulations and the provisions of the State Council's departments in charge of finance and tax, keep its accounts and carry out its accounting based on lawful and valid evidencing documents, accurately calculate its assessable revenue and taxable income based on the principle of the matching of the functions it actually performs and the risks that it bears, truthfully file and pay enterprise income tax and business tax with and to the competent tax authority within 15 days from the date of ending of a quarter and truthfully file and pay value-added tax with and to the competent tax authority by the tax payment deadline specified in the PRC Tentative Regulations on Value-added Tax and their Implementing Rules.

Article 7: If a Representative Office has unsound account books, fails to accurately account for its revenues or costs and expenses, or fails to make accurate filings in accordance with Article 6 hereof, the tax authority shall have the authority to determine its taxable income by either of the following methods:

(1) calculation of revenue based on expenditure: applicable to Representative Offices that can accurately reflect their expenditure but are unable to accurately reflect their revenue or costs and expenses.

(a) Formula:

revenue = expenditure for the period ÷ (1 – determined profit rate – business tax rate);

taxable income: = revenue × determined profit rate × enterprise income tax rate.

(b) A Representative Office's expenditure includes: working personnel's wages, salaries, bonuses, allowances, benefits, procurements of articles (including motor vehicles, office equipment and other such fixed assets), communication charges, travel expenses, rent, equipment leasing charges, commuting charges, entertainment expenses, other expenses, etc. paid in and outside China.

(i) The expenditure incurred when purchasing fixed assets, and fitting-out expenditure when a Representative Office is established or relocates, etc. shall at the time they are incurred be treated as a one-time expenditure and converted into revenue for tax purposes.

(ii) Interest income may not be set off against expenditure; entertainment expenses that are incurred shall be counted as expenditure at the amount actually incurred.

(iii) Charitable and relief donations made, and late payment penalties and fines paid, in cash in China and expenses incurred and advanced by a Representative Office for its head office and that are unrelated to the Representative Office's own activities shall not be counted as part of the Representative Office's expenditure.

(iv) Other expenses include: sample expenses and freight charges paid for the purchase in China of samples for the head office; warehousing charges and customs clearance charges incurred in China for foreign samples shipped to China; expenses for the engagement of interpreters/translators when personnel of the head office visit China; expenses for the purchase of bidding documents paid by the Representative Office when the head office bids on a certain project in China, etc.

(2) Determination of taxable income based on total revenue: applicable to Representative Offices that can accurately reflect their revenues but cannot accurately reflect their costs and expenses. The formula therefor is as follows:

taxable income = total revenue × determined profit rate × enterprise income tax rate.

Article 8: The profit rate determined for a Representative Office shall not be less than 15%. If a Representative Office whose tax levy is determined by the competent tax authority is able to establish sound account books, accurately calculate its assessable revenue and taxable income and reports the same to the competent tax authority for the record, it may change to the method of filing tax returns based upon actual income.

Article 9: If a Representative Office carries out an act that makes it liable for value-added tax or business tax, it shall calculate and pay the tax payable in accordance with the relevant value-added tax or business tax regulations.

Article 10: If a Representative Office wishes to enjoy the treatment available under a tax agreement, it shall handle matters in accordance with the relevant provisions of the tax agreement and the State Administration of Taxation, Circular on the Issuance of the <Measures for the Administration of the Treatment for Which Non-tax-residents are Eligible Under Tax Agreements (Trial Implementation)> (Guo Shui Fa [2009] No.124) and carry out tax filing and payment matters by the deadlines specified in Article 6 hereof.

Article 11: These Measures shall be effective as of January 1 2010. In the event of a conflict between existing provisions and these Measures, these Measures shall prevail. The State Administration of Taxation, Circular on Issues Relevant to Strengthening the Administration of the Levy of Taxes on Resident Representative Offices of Foreign Enterprises (Guo Shui Fa [1996] No.165), the State Administration of Taxation, Circular on Tax Administration Issues Relevant to Resident Representative Offices of Foreign Enterprises (Guo Shui Fa [2003] No.28) and the State Administration of Taxation, Circular on Issues Relevant to the Procedures for the Examination and Approval of the Tax Exemptions of Representative Offices Established in China by Foreign Governments, Etc. (Guo Shui Han [2008] No.945) are repealed. Applications made by Representative Offices for examination and approval of exemption from enterprise income tax shall no longer be accepted, and screening of those Representative Offices that have had tax exemptions approved shall be carried out in accordance with these Measures.

Article 12: Offices of the State Administration of Taxation and local taxation bureaux of the provinces, autonomous regions, municipalities directly under the central government and cities with independent development plans may formulate specific operating rules based on these Measures. Such rules shall be submitted to the (International Tax Department of the) State Administration of Taxation for the record.