On Feb.20th, 2010, China State Taxation Bureau (CSTB) launched a regulation 'Temporary Taxation Administration for Foreign Representative Office (No. 国税发〔2010〕18 'Rep. Office' hereafter)'. It defines how a foreign Rep. Office to process taxation matters. It is a main guideline for a Rep. Office’s compliance with its taxation duties including Business tax, Corporate Income Tax and other plus etc..

As Rep. Office does not have revenue, its taxes liability is transferred and calculated from organization expenditure and this is in consistence with the Regulation of Corporate Income Tax Clarification for Non-resident Enterprise (No.国税发〔2010〕19 Defined launched at the same day as Rep. Office’s Regulation mentioned above). These two have been impacted by VAT Reform. 

In year 2011, CSTB started taxation reform, VAT is used to replace Business Tax. It is said that VAT is more reasonable for a company as you mentioned it clarify to VAT In and VAT Out and as a result it could avoid double taxation duties to a company. Year 2016 is the final period to complete the reform. Shenzhen started to use VAT (3%, Small Tax Payers) to replace Business Tax (5%) last year. In Futian and Nanshan districts, the time for VAT to replace Business Tax is last May.  

It means that the Rep. Office regulation launched 7 years ago was challenged and adjusted.

Recently, CSTB also launched a regulation on May 5th, 2016 No.28th of CSTB Publication for Non-resident Enterprise (NRE). Again, there is no revenue or cannot record revenue correctly on time in a NRE, which means that organization’s tax liability is defined based on its expenses. In this regulation, 23% margin rate is defined. Rep. Office falls into this scope.

As the early Rep. Office’s regulation is inconsistence with NRE, so Rep. Office is facing to have the similar treatment as NRE at 23% margin rate for VAT and CIT calculations.

A good news is that, China government provide tax preferences for certain incomes from foreign countries. A Rep. Office's operation falling in a WOFE is possible to benefit from these grants. If you have any concerns on this matter, please do not hesitate to write to info@wealthsharings.com.