China Roundtable Discussion

Transcription

1 China Roundtable Discussion

2 Moderator: Keith Giddens, Tax Partner, DHG Presenters: Anthony Tam, Mazars Hong Kong Gene Kwee, Mazars Singapore

3 How many times have you been to China?

4 What is the most significant challenge you face doing business in China? 1. Qualified Talent 2. Getting money out of China 3. Rising Costs 4. Corruption 5. Foreign Exchange Uncertainty 6. Other 4

5 Why are U.S. Companies Investing in China? Lower-cost labor? Following their customers? Producing for the Asian market? Looking at China as a market for U.S.-produced goods? 5

6 U.S. Investment into China Favored / Incentivized High technology Infrastructure Environmental Out of Favor Normal Manufacturing Restricted Industries, e.g., Telecom, Investment Banking Free Trade Zones Lower Tax Rate, e.g. Qianhai in Shenzhen Easier Approval Process Bonded Warehouse Increased Number of FTZs VAT Reform Eliminating dual tax 6

7 Taxes on FIE Enterprise Income Tax Statutory tax rate: 25% Value Added Tax ( VAT ) VAT rate: 17%, 11%, 6% (depending on the business activities) Environmental Protection Law ( EPL ) New! Effective on 1 Jan 2018 Target: Entity and other business operator who directly emit taxable pollutants Taxable pollutants: specified atmospheric pollutants, water pollutants, solid wastes and noises Indirect emission: Discharge taxable pollutant to specified centralized treatment facility Solid wastes stored in approved facility Specified centralized treatment facility > subject to Environmental Protection Tax ( EPT ) if process not in accordance with relevant regulation 7

8 Taxes on Payment of Dividends, Interest, Royalty & Gains Withholding tax rate: 10% Further reduced by DTA For Hong Kong (under China-HK DTA): Withholding tax rate Dividends 5%, if ownership 25% Interest, royalty withholding rate 7% Beneficial ownership (Circular 601) 8

9 taxes on dividends for reinvestment New Initiative Deferral of withholding tax on profit distribution on reinvestment in China Implementation details - to be confirmed 9

10 Tax Incentives High & New Technology Enterprise CIT rate: 15% Staff training expense deduction 8% Software Enterprise 2-year EIT exemption, 3-year 50% EIT reduction Staff training expense no limit on tax deduction Accelerated amortization for purchased software (to 2 years) VAT refund for portion in excess of 3% Technologically Advanced Service Enterprise CIT rate: 15% Staff training expense deduction 8% Zero VAT for offshore service Others ((R&D Super Deduction, etc.) 10

11 Structure for Restricted Investors Foreign Investor Government License WFOE Operating Agreement Permits foreign investors to operate in restricted industries 11

12 Common Structures for U.S. Investment into China US C Corp US C Corp US S Corp US C Corp US S Corp Hong Kong Hong Kong Tax Heaven Dutch BV Hong Kong Hong Kong Considerations: 1. US Domestic Law Implications 2. Check-the-box? 3. Tax Reform Proposals 4. Intermediate Holding Companies 5. Tax Treaties / BEPS Action Plans 12

13 Case Study US US Co 100% HK Overseas HK Co Dividends 100% China Foreign Investment Enterprise 13

14 US Investment into China Before Reorg US C Corp After Reorg US C Corp Hong Kong New Holding Hong Kong Tax Trap for the Unwary! Transfer of ownership, even indirectly, even internally, triggers tax on gain! 14

15 Transfer Pricing Bulletin [2016] No. 42 Requirement of preparing transfer pricing documentation Reporting structure: 3 tier framework (i.e. master file, local file and special issue file) Threshold for preparation Exempt from preparation Deadline for preparation Deadline for submission Bulletin [2017] No. 6 Special tax investigation Comparability factors and TP methods Specific provisions on intangible assets & services Mutual agreement procedures 15

16 Keith Giddens, Tax Partner, DHG Anthony Tam, Mazars Hong Kong Gene Kwee, Mazars Singapore 16

17 DISCLAIMER Scope and Limitations Disclosure This communication is limited in scope and content, and is strictly limited to the issue(s) addressed and based solely upon representations of facts presented herein. This communication is intended to provide general information for discussion purposes only and cannot be relied upon to avoid tax exposure, penalties, or any other purpose. 17

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