Change of Deemed Net Profit for Representative Office
In accordance with the notice recently issued by the State Tax Bureau, the deemed net profit margin for Representative Office is determined not to be less than 15% and the revised deemed net profit margin took effect from January 1, 2010. The revised deemed net profit margin is likely to result an increase in effective tax rate of 2.1%, from prevailing rate of 8.84% to 10.94%.
The following formulas show the calculation of Business Tax and Corporate Income Tax taking into account the increase in the deemed net profit margin:
1. Taxable Business Revenue
= Total expense/(1- Business Tax Rate 5%- Deemed profit margin Rate 15%) = Total expenses / 0.80
2. Enterprise Income Tax
= Taxable Business Revenue x Deemed profit margin Rate15% x Enterprise Income Tax Rate 25%= Total expense/0.8 x 0.1 5x0.25
3. Business Tax
= Taxable Business Revenue x 5%= Total expense/0.80 x 0.05
The local tax bureaus are elaborating the timing for implementing the new policy and will announce the implementation of the change once they come with up with a decision. As the filing deadline for the first quarter 2010 is approaching very soon, we therefore would like to remind you that your Representative office may be subject to Enterprise Income Tax (EIT) at the revised rate starting from first quarter of 2010 and your EIT liability would therefore be increased accordingly.
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