When doing business in China, you often have to face numerous China tax issues as China has a lot more types of taxes than Hong Kong like value-added tax, resource tax, land appreciation tax, real estate tax, and sometimes your China financial statements may not truly represent the actual situation of the company as they may be more tailor-made to the tax bureau. Below are the top 10 PRC tax issues that you have to be aware of when you have your own company in China now.
#1 Special VAT Invoices
Special VAT invoices that are issued fraudulently or issued without proper authorization cannot be used to credit the input tax. Taxpayers involved in the forging of special VAT invoices may be subject to imprisonment. There are a lot of tax crimes on the forging of special VAT invoices in various states of China.
#2 Bring in Cash to China
You can only bring in maximum USD5,000 or CNY20,000 to China. You have to declare to the customs and provide them with related documents if you bring in cash more than that to China. A Hong Kong resident was fined nearly HKD1 million after he was arrested trying to enter the mainland carrying HKD5.5 million without declaration in February 2014.
#3 Deal with China Auditors
You have to always ask for the most accurate financial statements from the China auditors.
#4 Tax Audits Performed by Local Tax Practitioners
Tax audits performed by local tax practitioners are for your reference only and cannot be treated as a panacea.
#5 Oil Fuel Cards
It is true that your company cannot obtain any special VAT invoices when your driver buys an oil fuel card. However, your company may obtain special VAT invoices when you ask the oil fuel companies for monthly recharge statements.
#6 Provisions and Accruals
Provision for expenses is not tax deductible while expenses accruals are tax deductible in the current year if they are paid before the final enterprise income tax forms are submitted.
#7 Longstanding Accounts Payable
Longstanding accounts payable may be treated as income and subject to enterprise income tax.
#8 Staff Commercial Insurance
Your staff are liable to pay the individual income tax for the business insurance that your company buys for them.
#9 Gifts to Staff
Your staff are also liable to pay the individual income tax if they receive any gifts from your company.
#10 Real Property Tax
Self-occupied properties owned by individuals are normally exempted from paying real property tax, except for the properties located in Shanghai and Chongqing.
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