Is there any difference if the foreign headquarter is deemed to have a permanent establishment status in China?

If a permanent establishment status is found for the foreign headquarter, a 25 percent corporate income tax will be payable on the service income. The tax rate is a deemed profit rate, which is determined by the tax authorities. Furthermore, the foreign headquarter will have to do the followings if a permanent establishment is found:

• File and pay the estimated corporate income tax;
• File annual corporate income tax reconciliation; and
• Settle all tax liabilities upon the completion of contracts.

If the foreign headquarter is found to have permanent establishment status, and the foreign parent company collects the relevant service fees from the Chinese foreign-owned subsidiary, that amount should be charged in accordance to the arm’s length principle.