1. Related concepts of EPC engineering projects
EPC (Engineering Procurement Construction) engineering projects refer to engineering general contracting enterprises that undertake the design, procurement, construction, and engineering of engineering projects in accordance with the contract. Performance testing, trial operation services and other work during the construction phase of the project, and is fully responsible for the quality, safety, construction period and cost of the contracted project. EPC general contracting projects are generally projects with large investment scale, long construction period, and relatively complex technology. The contract is usually a fixed total price, and most of the risks during project implementation are borne by the general contracting enterprise.
2. Causes of tax risks in overseas EPC engineering projects
Tax risks exist in the entire process and every link of tax management. There are many causes of tax risks in overseas EPC engineering contracting projects, mainly reflected in as follows.
(1) Due to the different political systems, economic development levels and strategies of various countries, there are large differences in tax systems and collection and management methods in various countries. Enterprises do not understand the tax system and collection and management methods of the country where the project is located.
(2) The enterprise lacks early planning and has not selected the appropriate contract entity and organizational form.
(3) During the project implementation period, no attention was paid to basic planning, tax-related matters were not handled in accordance with the law, and tax incentives were not enjoyed in accordance with the law.
3. Response strategies to tax risks in overseas EPC project contracting projects
(1) Tax risk response strategies in the project tracking stage
Overseas EPC projects start from the tracking stage At the beginning, it is necessary to conduct research and inspection on tax management, including local tax substantive and procedural laws. The key contents of the research and inspection related to tax risks include: the tax treaties between the country where the project is located and my country and other countries, focusing on the relevant tax protection or preferential provisions in the tax treaties; the tax law system of the country where the project is located, and determining the items related to the project. Tax types, pay attention to tax preferential policies and application conditions and procedures; laws and regulations related to the introduction of technology and equipment in the country where the project is located; import and export laws and regulations in the country where the project is located, as well as preferential tax policies for imported equipment and materials, etc.
(2) Tax risk response strategies during the quotation and contract negotiation stages
1. Comparatively analyze tax costs and determine the optimal plan.
Strive to make it clear in the business contract that all taxes in the country where the project is located will be borne by the owner.
If it must be borne by the contractor, the bidding documents must be carefully studied to make it clear whether the project complies with the relevant tax exemption regulations, the tax types that can be exempted and the tax exemption procedures that need to be completed; and the owner must be promptly asked to clarify any ambiguous conditions. , combined with the tax planning suggestions during the research stage, analyze the taxes involved in each link of the project, calculate the tax costs of various quotation plans, and compare and determine the optimal project quotation strategy.
2. Properly split the contract.
With the consent of the owner, the company can take advantage of the particularity of the EPC contract to reasonably split the EPC contract into the EP part and C part. When the total price remains unchanged, appropriately carry out unbalanced quotations, appropriately reduce the proportion of construction and installation parts, maintain the company's break-even or moderate profits in the country where the project is located, avoid unnecessary risks of taxation in the country where the project is located, and reduce EP Part of it is subject to withholding tax, etc., in the country where the project is located.
3. Choose a reasonable contract signing entity.
After the contract tax terms and total price are determined, consideration should be given to selecting the optimal contracting entity to sign the business contract to minimize the project tax burden. The forms of establishment of overseas institutions include representative offices abroad, branches and subsidiaries, etc. Contracting enterprises should analyze the specific conditions of themselves and the project and choose the most appropriate establishment form for registration. For example, the EP part can be signed by the domestic parent company or a subsidiary located in an area with low tax burden; the C part can be signed by the parent company, or based on the strategic development needs of the enterprise, an independent legal entity subsidiary can be established and signed in the country where the project is located. implementation.
(3) Tax risk response strategies during the project implementation stage
After the EPC contract is signed, most of the relevant tax risks have been formed. The main strategy to deal with tax risks during the contract implementation stage is risk Mitigation and risk transfer. Specific measures are as follows.
1. Complete relevant domestic preferential filings to avoid double taxation or overpayment of taxes.
After signing the contract, the enterprise should promptly go to the tax authority where the enterprise is located to apply for the issuance of a "Certificate of Chinese Tax Resident Identity" and apply for the relevant benefits stipulated in the tax agreement.
According to the relevant domestic pilot regulations of "replacing business tax with value-added tax", the design part provided to external parties in the EPC contract can enjoy zero-rate VAT preferential treatment, and relevant certification should be obtained from the competent tax authorities. For the construction and installation part, the business tax exemption and reduction filing procedures must be completed in a timely manner in accordance with the new business tax regulations.
2. Establish two sets of accounting systems suitable for domestic and foreign management.
For the same economic business, the two sets of accounts are different in terms of accounting form, accounting content, cost range, tax basis, etc., but they are just two different forms of accounting processing. The accounting objects and accounting principles are essentially the same. For example, according to Vietnamese tax laws, air tickets ordered by local permanent establishments from Chinese travel agencies cannot be expensed as overseas project costs, and the true costs of this part need to be expensed in the domestic general ledger.
3. Select appropriate subcontractors and suppliers to transfer tax risks.
When determining qualified suppliers for overseas construction and installation parts, under the same conditions, priority will be given to local qualified subcontractors or branches of domestic enterprises in the country where the project is located; service contracts (including material procurement) at the location of the project and project subcontracting, etc.) should be priced including tax. The settlement and payment of local suppliers should be linked to the qualified bills provided by them, and withholding obligations should be performed strictly in accordance with local tax regulations. For service contracts where the project is located, local payment will be implemented as much as possible.
4. Establish a tax risk early warning reporting system.
Enterprises should establish a tax risk early warning reporting system, including regular tax risk early warning reports and special tax risk reports, based on the complexity of the tax environment for overseas projects and the enterprise's own risk preferences. Regular tax warning reports should provide a comprehensive analysis of the tax risks that existed in the past period and the risks that may exist in the next period. Special tax warning reports are made for special, urgent situations that have a serious impact on continued operations, and should be reported to the company's management in writing in a timely manner for corporate decision-making.
5. Localization of overseas tax management.
Hire local accountants who are familiar with local tax laws, work rigorously, and adhere to professional ethics to handle foreign tax account business in accordance with the tax laws of the country where the project is located. From tax registration, accounting book and voucher processing to the issuance and collection of relevant bills, strict management must be carried out to ensure timely declaration, correct declaration and timely payment of taxes. You can also hire a local tax accounting firm to assist in reviewing and preparing various tax reports required by the local tax department. Overseas tax management can easily pass the review of local tax authorities after being localized. In addition, in countries that have signed tax treaties, enterprises should promptly obtain tax payment certificates issued by the competent tax authorities of the country where the project is located for the corresponding year's corporate income tax, and conduct special audits of overseas project accounts on an annual basis to facilitate income tax deductions within the country.
(4) Tax risk response strategies at the end of the project
After the project is completed, it is necessary to conduct tax clearance, find work dead ends, pay various taxes in a timely manner, and eliminate the risk of fines. Cooperate with local tax audits and obtain tax payment certificates in a timely manner. Project-related tax documents must be archived and organized. Summarize the tax planning work during the entire project implementation phase to provide reference for subsequent projects.