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Tax Liability for Non-Resident Enterprises Engaging in Service Provision

By EU SME Centre | Guidelines      03.03.2014     Tags: Other

More and more European companies are facing the question of whether they actually have to pay taxes in China when providing services to Chinese customers, and if so, to what extent. The tax liability of a non-resident enterprise will hereafter be illustrated using three practical examples:

  1. A German company delivers a machine to a Chinese customer. The Chinese company is located in Beijing. In order to put its machine into operation, the German company has signed a service contract with the Chinese customer to install the equipment and sent an employee to China for a period of less than 6 months. The value of the contract is CNY 500,000.
  2. Same as the above, but in this example the German company sent an employee to China for a period of more than 6 months.
  3. A Belgian company provides consultation on the installation of equipment to a Chinese customer without sending an employee to China or having any other kind of establishment in mainland China. The seat of the Chinese company is a small county town in Guangdong province. The value of the transaction is CNY 100,000.

Generally speaking, enterprise income tax, business tax, value added tax (VAT), and some additional taxes based on the business tax and VAT have to be taken into account.

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