Background
KFIV is a commercial agency based in Germany which supplies the German and other European OEM automotive industry with high-quality components from China.
Since 2011 KFIV represented a Chinese manufacturer of automotive wire and cable. It introduced this company to European customers and established a supplier relationship.
For this service, KFIV received a commission from the Chinese company’s sales to European customers.
In 2014 the Chinese company informed that they were obliged to withhold a local tax for KFIV in China, at the rate of 15%. KFIV then communicated and negotiated with the local tax authority in China.
What We Did
In the process, KFIV sought assistance from the EU SME Centre and received clear advice from the Centre that, since KFIV did not send staff to China for the services provided to the Chinese company, no permanent establishment in China has been constituted according to the bilateral tax treaty between China and Germany. Therefore, the fee KFIV charged for the service provisions in Germany is not subject to enterprise income tax in China.
To learn more about China’s non-resident enterprise tax, read the Centre’s complete guideline here.
Success
With such information, KFIV succeeded in the negotiation with the Chinese tax authorities.
Eventually, the tax rate applied was reduced from 15% to 5%.
Quote by the company on EU SME Centre Services:
