Chinese Companies Going Global: Tax & Accounting Risks

In the wave of globalization, “going global” has become an important strategy for many Chinese enterprises. In some cases, companies often formulate meticulous investment strategies, but many have less knowledge about the tax and accounting of the target country(ies). Neglecting accounting and tax risks will inevitably result in unnecessary fines and penalties, leading to limited development.

On 16 October 2024, at the Enterprise Overseas Promotion event hosted by the Pudong New Area Human Resources and Social Security Bureau and the Pudong New Area Federation of Industry and Commerce, Mrs. HU, Pingwen, Senior Partner of ECOVIS Ruide Shanghai, summarized some of the tax and accounting challenges that companies face when expanding internationally.

At the same time, it was an honour to also welcome Mr. Quynh Vu, the Managing Partner of ECOVIS VIETNAM OC LAW to participate in this workshop and provide assistance to companies intending to set up in Vietnam. In this article, we would like to present a case on tax declaration.

Try to think first

Assuming your company has been operating successfully overseas, in the following situation, do you have to pay corporate income tax overseas? Do all expatriates have to pay individual income tax?

Scenario

Your company is sending more than 200 engineering personnel on a two-year on-site project to a client company in Europe:

50 personnel on work permits; stay over 183 days
150 personnel on business visas; stay less than 183 days

Please see the solutions offered by the ECOVIS Ruide team

Q: Corporate income tax: Do you have to pay corporate income tax in the European country(ies) where you operate?

A: Yes, you may have fulfilled the conditions for a Permanent Establishment (PE) according to the local tax laws. As such, you may need to declare the corporate income tax.

Q: Individual income tax: Do all expatriates need to pay individual income tax (IIT) in the European country(ies) where you operate? Does this include the personnel on business visas?

A: Yes, the personnel working locally for a PE may need to declare IIT from the first day. Individuals who stay for more than six months shall pay IIT as a tax resident according to local tax rules. Those who stay for less than six months may also need to declare IIT as non-resident taxpayers.

Certainly, the above case is just one of the many scenarios for overseas investment.

To ensure compliance and legality, each case should be analyzed on the basis of its specific circumstances.

If you have any tax, accounting, business management or legal questions relating to going global, please contact our team of professionals.

Jay Su
Tax Partner
ECOVIS Ruide
jay.su@ecovis.cn