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Common Issues



Many multinational company tax directors and manages conveys that managing the tax work in China is an art.

The laws are simple, but there are so many "circulars" giving interpretations to the law.
   
There are many tax incentives available, but the tax incentives are not automatic, you need to ask and negotiate.
   
You need to deal with state and local tax bureaus on different type of taxes.
   
The format of annual corporate income tax returns are adjusted frequently, which create issues for financial staffs to keep up with the changes.
   
The VAT systems in China is not a full VAT systems, not all industries are subject to VAT and not all inputs are creditable. Besides, the systems is highly dependent on special VAT invoices and related documentations.
   
China still adopts the "Business Tax" system, which will aggregate tax costs when the layers of transactions increase. This is extremely unfavorable to multinational companies with frequent inter-company changes.
   
Transfer pricing work in China is difficult, especially due to the lack of public databases providing the pricing information and financial data in the industry.
   
Tax related to foreign service provides are often overpaid. The in-charge tax bureaus often have their own internal guidance/interpretations over on-shore/offshore split percentage, "Permanent Establishment", deemed profit rate, etc.
   
There is no standard process to streamline the process in adjust home country GAAP based reports to PRC tax GAAP. Many multinational companies have to maintaining two sets of accounting systems, which may potentially lead to compliance issues and additional admin costs.
   
The overall corporate tax regime is in the process of change. (EIT, VAT)
 
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