As a business owner, navigating your tax and compliance obligations in Australia can be a confusing process. When you take your business abroad and start setting up operations in China, your compliance obligations only amplify. With the assistance of the tax teams in both our Shanghai and Sydney offices, we are able to provide you with all the latest China tax updates you need to be across.
2013 saw some major changes that we have addressed throughout the year. The below summary is a snapshot of the major compliance issues that impacted Australian SMEs doing business in China.
Compliance Snapshot
2012 -2013 VAT Reform in China
Since the open door policy, China’s tax system has always been designed to accommodate and support the development of Chinese economy. Value-added tax is one of the most important State Revenue sources in China and is the key tool used by the Chinese government to achieve its economic goals at different stages of development.
Why filing your Australian tax return may still be important and necessary
Many Australian expatriates residing overseas may regard themselves as no longer Australian residents for tax purposes. Many believe they have nothing to do with the Australian Taxation Office anymore or at least for the period they are residing overseas. Unfortunately this school of thought can get expats into trouble and if they have never reviewed their Australian tax position since leaving the country, they could be at risk.
Non-Final Withholding Tax for Foreigners
The Australian government has proposed a non-final withholding tax regime for disposals of taxable Australian assets by foreign residents. The measure will require the purchaser to withhold 10% withholding tax from the purchase price (the foreign seller’s proceeds) and remit it to the ATO. This measure will not apply to residential property transactions of less than $2.5 million. It is expected the measure will apply from 1 July 2016.
Thin capitalisation - how the 2013-2014 Federal Budget impacts your company's interest deductions
Thin capitalisation is a tax rule commonly found in OECD economies which limits the amount of tax deduction that can be claimed by an inbound (investing into Australia from overseas) or outbound (investing into overseas from Australia) entity. The broad purpose of the rule is to prevent the use of debt deductions as a method of shifting profits from Australia to a jurisdiction with lower tax rates (e.g. Hong Kong and Singapore).
Rental Properties – What Are Your Australian Tax Obligations?
Rental properties are a major component of many investors’ investment portfolios, be it in their own name or through investment vehicles such as family trusts and self managed superannuation funds. Further, in recent years there has been a massive surge in overseas investor interest in Australian real estate property, in particular residential property. Anecdotal evidence suggests that overseas investors, many from mainland China, account for a significant portion of investor demand at auctions.
What are transfer pricing rules and what do they seek to achieve?
Australia is a country with relatively higher rates of income tax. Hence, there is a powerful incentive for international businesses to minimise income here and shift profits to offshore related entities through arrangements/dealings whose terms do not reflect what would normally be expected between non-related party dealings at arm’s length. Transfer pricing rules are designed to counter such arrangements and protect a country’s tax revenues.
Does your Secondment Arrangement create Permanent Establishment and attract tax obligation in China?
About more than 90% of the MNCs would send overseas Headquarter staff to their China WFOE or Representative Office to support business setup or/and ongoing business operation. On 19 April 2013, the SAT issued Announcement 19 to clarify when the secondment of an employee by a foreign company will create a taxable presence or a Permanent Establishment (PE) in China and as a consequence attract local tax obligation.
Taxable cross border service subject to VAT exemption under certain requirements
On the 13th September China’s State Administration of Taxation promulgated the new implementation rules (Announcement 52) for taxable cross-border services. Announcement 52 will make it easier for companies to make use of VAT exemption for exported services already clarified in Circular 37 (2013). It applies retroactively to August 1, 2013, and any qualified revenue from September 1, 2012 to August 1, 2013 can be refunded or offset against tax due in the following period.
Special tax policies upon VAT and Sales Tax for small scope business enterprises
To further support the development of small scope business companies, an announcement was made on 1st Aug 2013 meaning small scope business enterprises or non-enterprises will be free from VAT or Sales Tax on their monthly sales revenue less than RMB20K.
Azure Group will continue to keep you updated on tax and compliance news that you need to be across and in the meantime if you do have any questions about your individual situation please do not hesitate to contact us at ourteam@azuregroup.com.au.
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