|
A health check review on a China entity is like conducting a detailed "body checkup" on the entity. It reports on whether the China entity is complying with the China business, foreign exchange and the relevant tax laws and regulations. In view of the recent tightening by the China tax authorities on tax collection, the hefty penalties (maximum 5 times of the outstanding taxes) and surcharges (about 18% per annum on the outstanding taxes) that could be imposed for failure to pay taxes and the possibility of cancelling the business licence for non-compliance with the business regulations, health checks are popular and important for risk management purposes.
How does an entity benefit from a China health check?
- To ensure that the current operations of the China entity substantially comply with the relevant China tax laws and regulations;
- To highlight the potential consequences in relation to the non-compliance practices for the period under review so as to facilitate the future corrective actions;
- To provide high-level suggestions to rectify non-compliance issues; and
- To identify areas whereby the overall tax efficiency of the current operations of the China entity may be improved.
A health check review would normally focus on the following types of China taxes:
- Foreign enterprise income tax
- Withholding tax
- Business tax
- Value added tax
- Customs duty
|
|
- Urban real estate tax
- Deed tax
- Stamp duty
- Individual income tax of the local staff
|
This list basically covers the taxes that a foreign investment enterprise (including a wholly foreign owned enterprise, equity or cooperative joint venture) would be subject to. Depending on the needs of the entity concerned, this list could be shortened or added on to include the review on the compliance status with respect to the business and foreign exchange laws and regulations. |
