Dennis Deng (attorney at law)

The Rule for Implementing the Enterprise Incorporation Registration Ordinance of PRC prohibits any enterprise, including foreign-invested enterprises incorporated in China, from doing business through representative offices. Nevertheless, some foreign-invested enterprises engaging in services industry are prone to do business through Rep. offices pursuing tax saving at risk of law violation. The enterprises misunderstand that they can reduce taxes upon business proceeds and income generated by the Rep. offices by consolidating such proceeds and income into those generated by the enterprises and claiming operating losses for tax return filing, which is prohibited for a branch company.

As provided in the Rule for Implementing the Provisional Ordinance of Business Tax, taxpayers shall file business tax return to the local tax authorities based in where their business proceeds deprive from and taxpayers shall include independent and unindependent accounting units. So, any branch companies, whether independent or unindependent accounting units shall perform business tax return filings for their local business proceeds in where they earn such proceeds.

China practices separate and different income tax system for foreign invested enterprises and domestic invested enterprises. As provided in the Rule for Implementing the Income Tax Law of Foreign Invested Enterprises and Foreign Enterprises, incomes earned by a branch shall be consolidated into those of its mother enterprise for purpose of income tax payment. So, a branch company shall perform their income tax filings consolidated under its mother enterprise. That is to say, income tax return filing of the branch companies shall occur in where such enterprise is based.

Dennis Deng: Attorney at law, Beijing J&T Law Firm of PRC

http://www.jctdlaw.com/english/dengyongquan.htm