How to pay tax on mainland income of overseas consulting enterprises

1. Case A well-known large enterprise group in Chinese mainland plans to list on NYSE. It hired a well-known American law firm to handle matters related to listing, including legal consultation and other business. This American law firm has set up a branch in Chinese mainland. In order to facilitate business, the US headquarters decided to operate this project together with its branch in Chinese mainland, but the United States did not send anyone to the mainland to engage in this project. Later, with the efforts of both sides, a mainland enterprise successfully went public in the United States. To this end, a mainland enterprise paid a service fee of $2 million from the American law firm. How should the service fee charged by this American law firm be taxed? 2. Analysis in recent years, overseas consulting enterprises have come to the mainland to engage in various consulting businesses, or mainland enterprises have entrusted overseas consulting enterprises to engage in various businesses. One of the issues that these enterprises are most concerned about is undoubtedly how to pay taxes on this part of income. According to the relevant provisions of the mainland tax law, whether it has branches in the mainland and whether the branches participate in the project will determine how to pay the relevant taxes. (1) When domestic foreign-invested enterprises and representative offices obtain income from consulting activities, the representative offices of domestic foreign-invested enterprises sign contracts with customers alone (including contracts signed by representative offices in the name of their head offices, but the actual business is performed by representatives), and all the income obtained from providing consulting services to customers is regarded as the income of foreign-invested enterprises and representative offices, and business tax and enterprise income tax are declared and paid at the location of their offices. In this case, because the enterprises providing services are mainland enterprises, according to the relevant provisions of the mainland tax law, the income from the mainland should of course pay business tax and enterprise income tax according to law. (2) When an overseas consulting enterprise independently provides consulting services for its clients to obtain income, the overseas consulting enterprise independently signs a contract with the clients, and determines the tax obligation according to the following circumstances: 1. If all the services provided by it occur in Chinese mainland, it shall declare and pay the business tax and enterprise income tax in full in the Mainland; 2. If the services provided by it occur both at home and abroad, the domestic and overseas income shall be divided according to the principle of the place where the services occur, and the income obtained from providing services in China shall be declared and taxed. Moreover, generally speaking, if the above-mentioned consulting business is aimed at customers in Chinese mainland, the income from the business in China should not be less than 60% of the total income. 3. If all consulting services provided by overseas consulting enterprises to customers are conducted overseas, the income obtained will not be taxed in Chinese mainland. (3) When both overseas consulting enterprises and domestic foreign-invested enterprises or representative offices * * * provide consulting services for customers to obtain income, both overseas consulting enterprises and domestic foreign-invested enterprises or representative offices * * * sign contracts with customers, and both * * * provide consulting services to obtain income, so they shall be taxed according to the following methods: 1. First, the income of domestic and foreign enterprises or institutions shall be divided according to the workload stipulated in the contract or a reasonable proportion. 2. Domestic foreign-invested enterprises or representative offices declare and pay business tax and enterprise income tax on the income they share. The income obtained by overseas consulting enterprises need not be declared and taxed. 3. Overseas consulting enterprises and their domestic affiliated enterprises or their representative offices jointly provide consulting services. If their customers are domestic customers, the income ratio of domestic foreign-invested enterprises or representative offices shall not be less than 60% of the total business income. 4. If overseas enterprises also send people to the mainland to participate in the consulting business of customers, the income of overseas enterprises shall be determined according to the principle of the place where the labor service takes place and the standard of not less than 50%, and the business tax and enterprise income tax shall be declared and paid according to the regulations. (4) Tax-related procedural issues 1. Withholding agent According to the relevant provisions of the inland tax law, the tax authorities may designate the payer of the project price or labor fee as the withholding agent of foreign enterprises engaged in construction, installation, assembly, exploration and other labor income in China. Therefore, for overseas consulting enterprises, their business tax and enterprise income tax are withheld and remitted by the payer. 2. When the income of an enterprise is in foreign currency, the mainland tax law stipulates that if the income of an enterprise is in foreign currency, it shall be converted into RMB for tax payment according to the foreign exchange quotation published by the State Administration of Foreign Exchange. Therefore, the foreign currency income obtained by overseas consulting enterprises should be converted into RMB according to the foreign exchange quotation published by the relevant mainland departments, and then the tax payable should be calculated at the applicable tax rate. According to the above discussion, the provisions of Article (3) shall apply to the payment of business tax and enterprise income tax of this American law firm. Then, 60% of the $2 million service fee, that is, $654.38+$20,000, needs to pay business tax and enterprise income tax in the Mainland, and the tax payable is withheld and remitted by an enterprise in the Mainland. 3. Conclusion With the increasing integration and close contact between the mainland and the international economy, mainland enterprises will continue to need overseas consulting enterprises to provide a variety of services, including law and accounting. Overseas consulting enterprises will not ignore the huge business opportunities and markets of Chinese mainland consulting business, so frequent and comprehensive contact between them is inevitable. However, overseas consulting enterprises are bound to charge service fees when providing services, which inevitably involves mainland taxation.