Official Reply of State Taxation Administration of The People's Republic of China on Tax Issues of Foreign Enterprises Providing Information System Operation and Maintenance and Consulting Services in China
Guoshuihan [2005] No.912
Guangdong Provincial Local Taxation Bureau:
Your request for instructions on tax issues related to the provision of information system-related operation, maintenance and consulting services by foreign companies in China has been received. IT is understood that Echo Germany has signed the Agreement on IT Operation, Maintenance and Consulting Services with its global subsidiaries, providing information system and related software operation, maintenance and consulting services for its global subsidiaries including Echo Electronics (Zhuhai Free Trade Zone) Co., Ltd. and Echo Electronics (Zhuhai) Co., Ltd. (hereinafter referred to as "China users"). As for the payment of fees, Aikede is responsible for arranging technicians to provide services at home and abroad in a unified way, paying related fees in advance, and then collecting service fees and prepaid software fees from users. The answers to the tax questions about the service fees and prepaid software fees charged by the German company Echo are as follows:
1. The above-mentioned business of the German company Apotheker belongs to the support, maintenance and consulting services provided for the normal operation of the existing information system of China users, including the related software transferred by it. In the current regulations, technical service fees should be merged into technical services for collecting (withholding) royalties income tax, which refers to labor services such as teaching, guidance and training as a way of granting proprietary technology. Therefore, the service fees charged by Echo Company for the above-mentioned business in Germany should be taxed according to different situations, which belongs to the part of providing labor services abroad, and no business tax and enterprise income tax are levied; Income from domestic labor services shall be subject to business tax and income tax in accordance with the Provisional Regulations of the People's Republic of China on Business Tax, the Income Tax Law of People's Republic of China (PRC) on Enterprises with Foreign Investment and Foreign Enterprises and Articles 3 and 7 of the Sino-German Tax Agreement.
Second, for the software fees charged by the German company Eco for its prepaid users in China to use the software provided by overseas enterprises, according to the provisions of Article 7 of the Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Business Tax and Article 19 of the Income Tax Law of People's Republic of China (PRC) on Enterprises with Foreign Investment and Foreign Enterprises, business tax and enterprise income tax shall be levied respectively according to the income from the transfer of intangible assets and royalties. Technology transfer that meets the requirements of the Notice of the Ministry of Finance State Taxation Administration of The People's Republic of China on Implementing the Decision of the Central Committee of the State Council on Strengthening Technological Innovation, Developing High-tech and Realizing Industrialization (Caishuizi [1999] No.273) may be exempted from business tax according to the provisions of the notice.
Three, enterprises should accurately and reasonably divide the above income, calculate and pay the relevant taxes. For the part that is unreasonable or can't be divided according to the actual situation, the competent tax authorities can determine a reasonable proportional division method to divide the taxable income.
Press release issued on 25th September, 2005