Rep office clampdown
A new tax circular bolsters the administration on representative offices. This will ensure greater tax compliance and shake them out of complacency
Since adopting the principle of Absorbing Foreign Investment by the Chinese government in the early 1980s, Representative Offices (ROs) have served as one of the main investment vehicles used by foreign investors wishing to enter into the Chinese market for the first time. ROs are popular due to the fact that since they are not independent legal entities, there is no registered capital requirement, the application process is easy and the operating costs are relatively low. However, the flip side is that there are some restrictions on the business scope of ROs and certain special rules regarding the taxation of ROs.
As times change, the old rules regarding ROs have to be updated to cater to the various changes that have taken place in the operating environment of China. Among others, on February 20 2010, the State Administration of Taxation (SAT) issued a circular entitled Tentative Measures for the Tax Administration of Resident Representative Offices of Foreign Enterprises (外国企业常驻代表机构税收管理暂行办法) Guoshuifa [2010] No.18 (the New Tax Rule), to clarify and update the taxation policies with respect to ROs in China.
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