In continuation of the latest trend against Rep offices in China (see previous posting), more barriers are now being put in place making this method of setting up a buying office less interesting.
The State Administration of Taxation (SAT), has released a new circular regarding the presumed profit for Rep. Offices. On February 20th, 2010 the SAT released circular No. 18 that increases the presumed profit rate from 10% to no less than 15% retroactively effective from January 1st 2010. This means paying 15% tax on all costs which are declared by the buying office – these costs include staff costs, office rental, HR fees, travel, supplies etc…
Furthermore, new Rep. Offices will now need to submit the original passport of the Chief Representative during the Tax Bureau registration phase of the Rep. Office establishment.
From our preliminary conversations with our HR service, the implementation rules have not been set forth, so the actual impact is not clear at this point.
We will continue to keep you updated on this and other changes to regulations regarding Rep. Offices and WFOE for China. For more information on how this might affect your company and plans to have a China based buying operation, please feel free to contact our China Buying Office.