Questions And Answers About Foreign Invested Enterprises (3)

Question: how do we calculate the taxable income of foreign enterprises in China?

Answer: a foreign enterprise who has contracted for construction, installation, assembly, exploration and other engineering operations in China, or the business income obtained from providing labor services to the relevant engineering projects is in conformity with the relevant conditions, may deduct the income tax after deducting the price of the project subcontract, purchasing equipment and materials, but the deduction amount shall not exceed 70% of the total business income.

For the contracting and assembling of machinery and equipment only, the purchase price of the purchase and replacement machinery and equipment will exceed 7O% of the total price of the contract business. After verification by the local tax authorities, it can be deducted according to the actual amount incurred.

What are the expenses of foreign invested enterprises and foreign enterprises that belong to the preparation period?

Answer: the cost of preparatory period for foreign invested enterprises includes: wages, travel expenses, training fees, consultation and investigation fees, social intercourse fees, document printing fees, communication fees and commencement fees.

However, it does not include the purchase and construction expenditure of fixed assets such as machinery and equipment, construction facilities, the expenditure for acquiring intangible assets, and the expenses borne by investors themselves in accordance with the provisions of contracts, agreements and articles of association.

Question: how to amortize the preparatory period fees of foreign invested enterprises and foreign enterprises?

Answer: the period of preparation is from the date of approval of the enterprise to the beginning of production and operation, including trial production and trial operation.

The expenses for an enterprise during the preparatory period shall be amortized from the beginning of the first month of production and operation, and the period of amortization shall not be less than 5 years.

Question: how do foreign enterprises pay their fees to the general organization?

Answer: a reasonable management fee paid by a foreign enterprise to an organization or a place established by a foreign enterprise in relation to the production office of this organization or its premises shall be provided with the supporting documents issued by the general authority for the collection scope, total amount, basis and method of the management fee, attached to the certified public accountant's verification report, and reported to the local tax authorities for examination and approval.

He asked: how should tax adjustment be made between foreign invested enterprises and foreign enterprises and their associated enterprises in terms of financing, providing labor services and pferring property instead of collecting fees and fees from business pactions between independent enterprises?

Answer: the amount of interest paid or charged by enterprises or affiliated enterprises is more than or lower than the amount that can not be agreed upon, or if their interest rate exceeds or lower than the normal interest rate of similar businesses, the local tax authorities can adjust the interest rate with reference to normal interest rates.

The labor service provided by the enterprises between the enterprises and the affiliated enterprises will not be charged or paid in accordance with the pactions between the independent enterprises. The local tax authorities may make adjustments according to the normal charging standards for similar labor activities.

The pfer of property and the right to use the property between enterprises and associated enterprises shall not be assessed or paid or paid according to the business pactions between independent enterprises. The local tax authorities may make adjustments according to the amount that can not be agreed upon by the relevant parties.

Question: how do we make tax adjustments between foreign invested enterprises and foreign enterprises in relation to the purchase and sale pactions between affiliated enterprises and foreign enterprises instead of the business pactions between independent enterprises?

Answer: the local tax authorities can adjust the purchase and sale business between the enterprises and related enterprises by the following sequence and method, not according to the business pactions between independent enterprises.