Comparison of Tax Liability of China Representative Office (RO) vs. Wholly Foreign Owned Enterprise (WFOE)
With this calculator you can calculate how much you can save in tax by switching from a Representative Office to a Wholly Foreign Owned Enterprise simply by inputting your annual expenses from financial year 2014.
In China, a Representative Office is a basic corporate structure which foreign companies use for market research, support and as a way to "get their foot in the door." They are cheap and quick to set up, but can't make profit and are heavily taxed on expenses. A Wholly Foreign Owned Enterprise is a fully owned, fully incorporated entity that has more flexibility with their operations and can make a profit and generate revenue. WFOEs are liable to Business Tax on turnover and Corporate Income Tax on profits.
The purpose of this calculator is to show that by switching from an RO to a WFOE, business owners can potentially save high amounts on their annual tax costs. Not all RO's will benefit from such a switch, only those that have high annual expenses. Because profit rates can be adjusted, the tax that a WFOE is liable for can be less than that of the inflexible structure of a RO.
In our experience we have found that any Representative Office that has expenses of over RMB 1 million per annum would benefit from this conversion and could be cost effective after one year, even after taking into account the cost of the conversion process.
For more information, and to schedule a detailed consultation on whether this switch is right for your business, please contact a Dezan Shira & Associates Representative by clicking here
To find out what your potential savings are please input your RO expenses for 2014 (RMB) into the field above.