Taxes when exporting to China – not everyone has the obligation

By Richard Hoffmann, ECOVIS Beijing China

Background

ECOVIS Beijing China is trusted partner of several Embassies in China. We frequently help with inquiries. Recently, we have been asked to assist with the following project:

The Issue:

Company A, which is based in Austria, delivered their product (machinery) to company B, which is based in the same country. B resold the machine to company C in China, company A installed it. The installation work didn’t take any longer than 3 weeks. All contracts with company C were signed only by company B, company A has not signed any contract with the end consumer C but received payment for delivery and installation by company B. Company A was unsure if they had to pay taxes at all and also company B was not sure about which taxes to pay.

Being a trusted partner of many European Embassies, ECOVIS Beijing China was asked to solve the tax riddle.

The Solution:

We evaluated the three above mentioned companies’ situation and found the following solution for the customers:

Company C has to pay import VAT for the machine. Company C is withholding CIT from company B. Company A does not have to pay any taxes (besides possible IIT implications) as long as the installation takes less than 180 days consecutively or cumulatively in any successive 12 months it is therefore not deemed as a permanent establishment, otherwise, CIT would be subject to be withheld.

The company’s benefit:

With our advice the companies could make sure they are in both legal compliance and paying the right taxes. Following our solution they did not have to fear any punishment payments.

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