China Tax - Foreign Contractor

The Issues
   
Foreign contractors and the staff they send to China for a multitude of projects, including those relating to the World Expo in Shanghai in 2010, can be subject to income tax, business tax, individual income tax and other miscellaneous taxes.  Value added tax and customs duties may also apply on purchases of tangible property.
    
Foreign contractors include power plant contractors, equipment suppliers and installers, construction-related contractors, oil and gas contractors, and technical service suppliers, whether or not they are from within the corporate group.
    
The portions of a contract subject to value added tax, income tax or business tax will depend on how the contract is structured.  In poorly structured contracts, it is possible for both value added tax and business tax to apply on some items.  The customer will withhold an arbitrary amount of tax set by the tax bureau if the foreign contractor does not take a proactive approach to deal with its own PRC tax position.
    
Unless special permission is granted to the foreign contractor, income tax returns are due quarterly and annually and business tax returns due monthly.  Individual income tax returns are required to be filed on a monthly basis.

The Solutions
   
Our Foreign Contractors specialists have provided a one-stop comprehensive service package to a large number of foreign contractors for their China contracts.
    
This package starts with advice on how to structure the contract in the most tax-effective manner (including using tax treaty provisions), followed by a review of draft contracts, assistance with registration with Industry and Commerce and the tax authorities, negotiation with the tax authorities on a favourable deemed profit rate and an acceptable apportionment of the contracts, application for tax treaty benefits, preparation and filing of tax returns, and finally, de-registration when the project is completed.
   
Our service package also covers the tax registration of expatriates, preparation and filing of tax returns, and de-registration when they leave China.  We have also advised many customers of foreign contractors on how to minimise the taxes on the contracts and thereby minimise the cost to the customers.