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[ESTABLISHING A BUSINESS ENTITY IN CHINA]
on their working and residence status in China. Partnership In principle, partnerships in China are tax pass-through entities and do not need to pay income tax at the partnership level. The partners are subject to income taxes on their distributive share of the business profits earned from the partnership. Although a foreign-invested partnership is a “pass-through” entity and not directly subject to income tax, it needs to pay other taxes related to its business, such as VAT, urban maintenance and construction tax and stamp duty, etc.
d) Other Taxes There are other taxes that may apply to an FIE during its operation and activities, such as the customs duty, urban maintenance and construction tax, and stamp duty. It is recommended that an FIE consult a legal or tax advisor for a comprehensive tax assessment that might be applicable to its specific case. 7) Labor a) Hiring capacity Under Chinese labor laws, ROs are not eligible to hire employees directly. An RO shall engage a local authorized labor agency to hire employees, and the labor agency will dispatch such employees to the RO. By contrast, a company, or partnership can directly hire employees. b) Labor contract All employers in China shall execute a written labor contract with each employee within one month from the date when the employee starts to work. Otherwise, the employer is required to pay double salary to the employee from the second month. If the employer fails to enter into a written labor contract with an employee for more than one year, it will be deemed that the two parties have entered into a permanent labor contract. The employer is subject to different obligations to the employee under either a fixed-term labor contract or a permanent labor contract; and its
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c) Withholding Tax
Withholding tax is imposed on all income generated in or derived from China by foreign investors, such as dividends, interest, royalties, rental income, or profits on transfer of assets, etc. The currently applicable withholding tax rate for foreign investors is ten percent. The withholding tax rate is subject to adjustment under applicable tax treaties or arrangements. For example, the tax arrangement with Hong Kong provides for a five percent reduced withholding tax rate on dividends and a seven percent reduced withholding tax rate on loyalty incomes provided that certain requirements are met under such tax arrangement.
ILN Corporate Group – Establishing a Business Entity Series
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