Triggering Permanent Establishment Status in China presented by Angela Ma
Presenter(s):
-
Senior Associate, International Business Advisory
Office: Beijing Office
- Title: Triggering Permanent Establishment Status in China presented by Angela Ma
- Date: July 29th, 2014
Angela Ma, International Business Advisory associate, provides insights into how permanent establishment (PE) is triggered in China and some of the major tax implications associated with permanent establishment.
Transcript:
What different ways is PEs defined?
- Companies can be deemed to have PE if:
Fixed PE: It has an establishment or a place of business in China
Construction: It has a building site, a construction, assembly or installation project or related supervisory activities that last for a certain period of time.
Agent PE: it appoints an agent in China to conclude contracts or accept orders in China
Service PE: It has employees working in China for a certain period of time.
When would a PE be triggered?
- A fixed place has the following characteristics:
The business venue actually exists
The business venue is relatively fixed and stable
All or part of the enterprise’s business is carried out through the business venue
- Construction PE: A PE can also take the form of a building site, a construction, assembly or installation project or supervisory activities therewith that last for a period of more than 6 month
- Service PE:
Constitutes where the provision of services by an enterprise through the dispatch of its employees or other personnel to China, continues within China for a period or periods of aggregating to more than 6 months or 183 days within any 12 month period.
What are some of the major tax implications associated with PE
- For businesses that does not constitute a PE status, they are only subjected to 6.75% VAT (Value-added Tax)
- Once a PE status has been triggered, it is subject to 25% corporate income tax (CIT) on its China-sourced income as well as non-China- sourced income that has an actual connection to the “permanent establishment.” Besides CIT, all expatriates working for the PE would also be subject to China Individual Income Tax (IIT) on their China-sourced income from the first day they arrived in China for the duration of the PE project.
- Companies can be deemed to have PE if:
Fixed PE: It has an establishment or a place of business in China
Construction: It has a building site, a construction, assembly or installation project or related supervisory activities that last for a certain period of time.
Agent PE: it appoints an agent in China to conclude contracts or accept orders in China
Service PE: It has employees working in China for a certain period of time.
When would a PE be triggered?
- A fixed place has the following characteristics:
The business venue actually exists
The business venue is relatively fixed and stable
All or part of the enterprise’s business is carried out through the business venue
- Construction PE: A PE can also take the form of a building site, a construction, assembly or installation project or supervisory activities therewith that last for a period of more than 6 month
- Service PE:
Constitutes where the provision of services by an enterprise through the dispatch of its employees or other personnel to China, continues within China for a period or periods of aggregating to more than 6 months or 183 days within any 12 month period.
What are some of the major tax implications associated with PE
- For businesses that does not constitute a PE status, they are only subjected to 6.75% VAT (Value-added Tax)
- Once a PE status has been triggered, it is subject to 25% corporate income tax (CIT) on its China-sourced income as well as non-China- sourced income that has an actual connection to the “permanent establishment.” Besides CIT, all expatriates working for the PE would also be subject to China Individual Income Tax (IIT) on their China-sourced income from the first day they arrived in China for the duration of the PE project.
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