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China Tax Liability Case Study

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Essay # 2: Tax liability on China business operations of Indians

China is set to emerge as the worlds largest manufacturing and exporting country. The nation has displayed resilience in spite of the global economic crisis and their GDP has seen a consistent growth. Since November 2001, China has seen a rapid growth in foreign investment and trade with the country joining the World Trade Organization (WTO). The implications of which include reduced tariffs on certain products and phased introduction in market access to several otherwise regulated industries. The sectors that are now open to foreign trade include advertising services, freight forwarding agency services, inspection services, franchising and trade and distribution. A relatively more welcoming market …show more content…

In order to repatriate the profits, dividends and financial benefits, the Chinese entity of the business must provide receipts that serve as evidence that the firm has fully paid up their corporate income tax, an annual audit report has been carried out and the board has passed a resolution on the appropriate division of profits and dividends. Along with this, the Foreign Exchange Registration Certificate and a capital verification report must be handed in. A withholding tax of 10% is applied on the dividends from the profits, unless in the case of double tax treaties.

An Indian company having an establishment in China or based in China will be subject to Chinese tax on all income that is linked with the company’s Chinese operations. These tax rates are as follows:

The normal corporate income tax rate is 25%. However, special rates of 10% and 20% may apply to small scale companies if they meet the requirements. Both, businesses that have HNTE status and those engaged in encouraged business and are incorporated in certain regions of China get a 15% income tax

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