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  FAQ about Foreign Investment Enterprise Income Tax
 
Home> FAQS > About Foreign Investment Enterprise Income Tax

About Foreign Investment Enterprise Income Tax
1)Q:Shall the financial statements submitted in the annual
     declaration of Foreign Investment Enterprise Income Tax
     be audited by the Certified Public Accountant?
Enterprise shall report Income Tax return and financial statements to competent tax authority during the period as regulated by Tax Law, whether making profits or losses in taxable year. In reporting the financial statement, auditor's report by Chinese CPA should be attached.
2)Q:How can enterprise subject to Income Tax at rate of
     half reduction prepay quarterly Income Tax?
Corporate Income Tax shall be prepaid quarter ly (prepaid within 15 days from the end of quarter), and calculated by year (settled within 5 months from year end), with refund for any overpayment or a supplemental payment for any deficiency. Foreign Investment Enterprise prepaying quarterly Corporate Income Tax shall use profits of this year to cover the losses incurred by the enterprise during the previous year at first, and prepay quarterly Corporate Income Tax payable on the profits after covering losses at applicable tax rate later. Therefore, enterprise entitled to half rate reduction of Corporate Income Tax shall prepay quarterly Income Tax at the half reduced tax rate.
3)Q:Is there any time limit for reporting financial
     statements?
The reporting time limit: quarterly reporting within 15 days from the end of quarter, and annual reporting within 4 months from each year end.
4)Q:Need Foreign Enterprise which charges consulting
     fee on enterprises in China pay Income Tax?
Yes,Foreign Enterprise without establishment in China shall pay Corporate Income Tax at 10% tax rebate.
5)Q:Can the loss incurred by Foreign Investment
     Enterprise in one year be deducted from the profits in
     subsequent years?
In following two cases:In following two cases:
  Covering the loss incurred by only one company: The loss can be deducted from the profits of next taxable years consecutively up to 5 years. Loss of previous year shall be covered before quarterly
  Corporate Income Tax is prepaid from the remaining profits (if any) after covering the loss.
  Covering the loss incurred by more than one company:
  Enterprise with combined Income Tax reporting and paying will involve different tax rates applicable to more than one company which calculate their tax payable at their own tax rate respectively, therefore, the loss incurred by some company will be covered by the profits of other company at the same tax rate (if any), or covered by the profits of other company at similar tax rate.
6)Q:What are the requirements for Foreign Ivestment
     Enterprise to settle the IncomeTax?
Enterprise shall report the annual statement of Corporate Income Tax to competent tax authority within 4 months after year end, and deduct the prepaid Income Tax from the yearly actual tax payable and verify the tax payable in supplement . The competent tax authority will carry out a general audit on the annual return and relevant information of the enterprise within 5 months from the year end, and profess the issues of the enterprise's annual Income Tax for refund for any overpayment or a supplemental payment for any deficiency.
7)Q:Shall the travel allowance of employee on business
     trip be subject to individual income tax?
Yes,Travel allowance is generally treated as salary by the enterprise to the employee.
8)Q:What effects will it have on taxation when Foreign
     Investment Enterprise has not fully paid the authorized
     capital within appointed time?
Foreign Investment Enterprise which ha s not fully paid the authorized capital, and has been disqualified as Foreign Investment Enterprise, will pay Corporate Income Tax as per the Tax Law as if the enterprise was a domestic investment enterprise.
Foreign Investment Enterprise which has not fully paid the authorized capital, but has not been disqualified as Foreign Investment Enterprise, will pay corporate Profits Tax as per the Tax Law in the capacity of Foreign Investment Enterprise temporarily. If foreign investor contributes less than 25% of the authorized capital, there is no entitlement to Foreign Investment Enterprise Income Tax preference, and if more than 25%, there is entitlement to tax preference from this year.
9)Q:Can the personal casualty insurance contributed by
     the company for employees be deducted before tax?
Only statutory insurance in China can be deducted before tax.
10)Q:Can parent company of Foreign Investment Enterprise
     charge its branch in China for administration cost?
Yes,But the charge shall not be more than 2% of its gross profits, and it is necessary for the parent company to file application to the competent tax authority by the end of October each year.
11)Q:How to process the VAT of "Processing and Assembly"
     Enterprise ?
"Processing and Assembly" Enterprise can process "Tax-free Certificate for Processing & Assembly" with the tax authority competent for export tax rebates, by virtue of imported goods declaration and registration handbook for processing & assembly reviewed and signed by customs, then the enterprise holding this Certificate can declare process exemption from VAT and Consumption Tax payable on its processing or processing deal of goods, with the tax authority in charge of taxation. After exportation of goods, enterprise shall process cancellation after verification with the tax authority in charge of export tax rebates by virtue of exported goods declaration for processing & assembly as well as the registration handbook for processing & assembly cancelled after verification by customs.
12)Q:What taxes payable are involved in "Processing
     and Assembly"?
Taxes payable include: Foreign Investment Enterprise and Foreign Enterprise Income Tax, VAT, Consumption Tax, Stamp Duty, Real Estate Tax and vehicle and vessel license tax, Individual Income Tax (personally paid). The first three items of taxation are levied by national tax department, and the rest falls in the collection of local tax department.
13)Q:Does Foreign Investment Enterprisen eed to pay
     "local educational surtax"?
No.
14)Q:Which investors are entitled to the preference of
     reinvestment tax refund?
Foreign investor of Foreign Investment Enterprise who shall reinvest its profits distributed from the enterprise directly into the same to increase the authorized capital or as capital contribution to open other Foreign Investment Enterprise, with operating period of at least 5 years, after approval of tax authority, shall be entitled to 40% of the income tax paid on its reinvestment.
Foreign investor, who reinvests directly in China to set up or expand export-oriented enterprise or technologically advanced enterprise, shall be entitled to refund of the entire Corporate Profits Tax paid on its reinvestment.
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