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After Shanghai WFOE registration, you may need to consider tax related issues of the WFOE you registered.It’s necessary to have a good knowledge of the tax in Shanghai, where your company located in. This article is to introduce Shanghai WFOE tax liabilities for your references.
1.Enterprise Income Tax (EIT)
In practice, the Enterprise Income Tax shall be paid monthly or quarterly (depending on the scale of the taxpayer) within 15 days of the end of month/quarter, and be reviewed and settled by the tax bureau at the year-end (within 5 months starting 12/31). Normally, the EIT is calculated on the base of “Enterprise Income”, profit before tax (PBT) generated in a month/quarter, or a contract price for services provided in China by companies without legal entities registered in China. The tax bureau can exercise their right to apply a tax rate after assessment.
2.Value Added Tax (VAT)
VAT percentage in China varies according to the scope of activity of the company. The standard rate of VAT in China is 17% for trading activities and 6% for consulting activities. In addition, VAT can be deductible for WFOE companies.
The three rules of deductible VAT:
-The WFOE must be a general taxpayer before it could claim VAT deduction during the course of business.
-Only special VAT fapiao (Chinese receipts) can be used for deduction.
-The WFOE must have some revenue to pay VAT for. The WFOE must generate legal income within the capacity of the entity in order to deduct a VAT fapiao from the total VAT amount to be paid on its income.
3.Withholding Tax
Withholding taxes are applicable in case the profits made in China are to be transferred abroad.
When a Chinese company wants to send money to a foreign entity, a Service Agreement must be concluded to confirm the transaction. In general, a withholding tax of around 10% is applied on the amount of the contract. In China, the final rate could only be assessed after carefully examination of the contracts and the invoice.
Regarding the Chinese VAT and surtax, it is usually not recoverable in other countries. Finally, another option is to pay income tax on the WFOE result in China and then repatriate dividends abroad.
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