How to save tax after FIEs face the same National Treatment as domestic business
1.Apply for small-profit enterprise qualification to enjoy lower tax rate Criteria to apply for small-profit enterprise:-
(1) Annual taxable income less than RMB 3 million
(2) Employee less than 300
(3) Total assets less than 50 million
Small-profit enterprise qualification can help you to get a 20% rate compared with 25%. For small low-profit enterprises, the effective tax burden on annual taxable income of ≤ RMB 3 million is 2.5% (for the portion ≤ RMB 1 million) 5% (for the portion between RMB 1-3 million), compared to the standard 25% corporate income tax rate, resulting in significant tax savings.
2.For trading companies, use your HK company (if any), design the pricing system to save in-side China profit
If you have HK companies, then the export to end customer can be separated into two steps, China to HK to end customer. Real products do not need to arrive at HK, it is only a document process for HK export, and if the sales are from mainland China to end customer, without real activities in HK, no tax will be paid in HK. You then have the chance to re-arrange your margin for tax purpose.
3.Comparing with the cost for oversea transfer to claim more oversea expenses
If you have oversea payment in practice, you can choose to pay it from your holding company, or China WFOE. Previously, quite a lot of FIEs choose to settle oversea payment outside China even if it is China WFOE’s expense. They try to avoid the bank charges, and withholding tax for transfer. However, now you need to compare the cost with the 25% corporate income tax. If you claim more expenses can save corporate income tax to you, the payment for those charges and withholding tax is reasonable.
*For more tax benefits and planning solutions, consult with our advisors.