Ernst & Young is out with an informative online publication on indirect taxes in China, Navigating Chinese Indirect Taxes [link no longer exists]. It gives an overview of these taxes and how they can, and almost certainly will, impact your China business.
It starts out with the following general comments regarding indirect taxes in China:
Indirect taxes (specifically Value Added Tax, business tax, customs duty and consumption tax) play an important role in China, accounting for almost 60% of the government’s tax revenue. Newly revised regulations are changing how indirect taxes are treated in China. But these are often the forgotten tax on business. Tax directors may overlook these costs as they are above the line and usually not directly visible within the accounts or financial statements.
We are often surprised to learn that many companies have yet to grasp the significance of the indirect taxes passing through the organization. More often than not, indirect taxes are viewed as process-oriented throughput costs rather than as a direct charge to the bottom line that should be managed through proactive and concerted efforts. It is not common for companies in China to employ dedicated resources accountable for the risks and costs that arise from processing indirect taxes. This approach creates risks and results in missed savings opportunities.
My law firm’s international business lawyers constantly telling our clients that taxes in China are really not that different from taxes in the United States. China’s business tax system is generally (cough, cough) logical and manageable and is not to be ignored.
What this means is that if you are a small to mid-sized company doing business in China legally, you need someone either inside or outside your company handling your financial books and you need a good accountant overseeing it all. Because you are a foreign business and your operations may have tax repercussions not only in China, but also in your home country, it also usually makes sense for your accountant to be familiar with both China’s tax laws and those of your home country. These sorts of accountants are few and far between and cannot be found at all outside China’s bigger cities.
What do you think?