Regulations on taxation treatment to enterprises with foreign investment or foreign enterprises providing service to their subsidiary enterprises

　BY　 2004-03-18 14:46:55

Recently, State Administration of Taxation regulated the taxation treatment related to enterprises with foreign investment or foreign enterprises providing service to their subsidiary enterprises as follows:

1. The payment or receipt the enterprise with foreign investment charges for providing services to its subsidiaries, shall be made in the same manner as the payment or receipt of charges of fees in business transactions between independent enterprises.

Where the payment or receipt of charges or fees is not made in the same manner as in business transactions between independent enterprises, the tax authorities shall have the right to make reasonable adjustments.

2. Enterprise with foreign investment which provides services to its subsidiary, shall sign contract with the subsidiary, which stipulates clearly the details of service, the charge standard for the service, and etc. The enterprise with foreign investment shall pay business tax and income tax on this income.

3. When an enterprise with foreign investment provides same service to more than one subsidiaries, it doesn￡?￡?￡?￡?t charge its subsidiaries in the way of signing different contracts and deciding charge standards, but decide the total service charges according to real expenses incurred, and allocate this amount to these subsidiaries with certain ratio. The right treatment shall be as follows:

--The expenses led by the services shall be allocated and calculated reasonably and accurately.

--the total receivable from the services should be calculated using following formula:

the total receivable = real expenses/(1-business tax rate-approved profit rate)
the approved profit rate in the above formula shall be 5% when the subsidiary is located in China. The profit rate shall not be restricted when the subsidiary is located abroad.

The allocation ratio may be decided on the basis of total investment, registered capital, total sales and total assets of subsidiaries. The ratio shall not be changed once decided. Any change of this ratio shall be approved by the qualified tax authority

The title of the service provided and the standard of charge allocation shall be notified to subsidiaries in written form to be the proof by which the subsidiaries deduct the service expenses from taxable income.

4.fUG The expenses or losses of an enterprise with foreign investment, incurred for subsidiary investment, such as expenses for investment decision making, investment interest, salary of investment management, and etc., shall not be deducted from taxable income, and shall not be allocated to its subsidiaries.
The enterprise shall allocate investment expenses and losses separately.

The investment expenses shall be calculated using the following formula when the expenses is less than the result calculated by using the formula.

Investment expenses = total expenses of the enterprise*investment income/(operating income*5+investment income)

The investment income is the total of profit that should be distributed from its subsidiaries, excluding investment losses. The operating income is the total income from enterprise￡?￡?￡?￡?s operations, excluding investment income.

5. when an enterprise with foreign investment represent its subsidiaries to sign contract with other enterprise, and receive service together with its subsidiaries from it, the enterprise with foreign investment prepaid all service charges for its subsidiary and then charge its subsidiaries for service fees, under this circumstance, the service charges from its subsidiaries shall not be included in the taxable income of the parent company.

The enterprise with foreign investment shall allocate services charges between its subsidiaries according to article 3 of this regulation, and submit written form to its subsidiaries when receive charge from its subsidiaries.

6. Enterprises with foreign investment shall not ask or allocate any kinds of management expenses to its subsidiaries.

(Editor:)　(From: dalian.gov.cn)

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