Questions And Answers On Taxation Of Foreign-Invested Enterprises (3)

Q: How do foreign enterprises calculate and pay tax on their income from contracting projects in China? Answer: If the business income of foreign enterprises from contracting construction, installation, assembly, exploration and other engineering operations in China or providing labor services for related engineering projects meets the relevant provisions and conditions, they can calculate and pay income tax after deducting the project subcontracting price, equipment and materials purchase price, but the deduction amount shall not exceed 70% of the total business income at most. For those who only contract for the installation and assembly of machinery and equipment, if the price for purchasing and manufacturing machinery and equipment on behalf of others is indeed more than 70% of the total contract business price, it can be deducted according to the actual amount after verification by the local tax authority. Q: What are the preparation fees for foreign-funded enterprises and foreign enterprises? A: The preparation period expenses of foreign-funded enterprises include: salaries of preparation personnel, travel expenses, training fees, consulting and investigation fees, social entertainment fees, document printing fees, communication fees, commencement ceremony fees, etc. However, it does not include the purchase and construction expenses of fixed assets such as machinery, equipment and construction facilities, the expenses of purchasing various intangible assets, and the expenses borne by investors according to the provisions of the contract, agreement and articles of association. Q: How to amortize the expenses of foreign-funded enterprises and foreign enterprises during the preparation period? A: The preparation period refers to the period from the date when an enterprise is approved to prepare to the date when it starts production and operation (including trial production and trial operation). The expenses incurred by an enterprise during the preparation period shall be amortized by installments starting from the month following the month of starting production and operation. The amortization period shall not be less than five years. Q: How are the expenses paid by foreign enterprises to the head office disbursed? Answer: For the reasonable management fees paid to the head office of a foreign enterprise that has set up an organization or place in China in connection with its own organization or place production, it should provide the certification documents issued by the head office on the scope of collection, total amount, basis and method of allocation of management fees, and annotate the accountant's verification report, which should be reported to the local tax authority for review and approval before being disbursed. Q: How to make tax adjustment if foreign-invested enterprises and foreign enterprises and their affiliated enterprises do not charge fees and charges for financing, providing labor services and transferring property according to business transactions between independent enterprises? Answer: If the interest paid or charged by the financing funds between enterprises and affiliated enterprises exceeds or is lower than the amount that can be agreed by no affiliated enterprise, or its interest rate exceeds or is lower than the normal interest rate of similar businesses, the local tax authority can adjust it by reference to the normal interest rate. If the service fees are not collected and paid according to the transactions between independent enterprises when providing services between enterprises and associated enterprises, the local tax authorities may make adjustments with reference to the normal charging standards for similar service activities. Where business transactions such as the transfer of property and the provision of property use rights between an enterprise and an associated enterprise do not price or collect or pay royalties according to business transactions between independent enterprises, the local tax authorities may make adjustments with reference to the amount that can be agreed without association. Q: How to make tax adjustment for the purchase and sales business transactions between foreign-invested enterprises and foreign enterprises and affiliated enterprises that are not priced according to the business transactions between independent enterprises? Answer: If the purchase and sales business between enterprises and affiliated enterprises is not priced according to the business transactions between independent enterprises, the local tax authorities can adjust it according to the following order and determination method: