FIEs Now Liable for Urban Maintenance and Construction Taxes

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Oct. 22 – From December 1 of this year, foreign-invested enterprises in China will be required to pay urban maintenance and construction taxes and local fees according to a recent announcement made by the State Council

The move aims to promote fair competition and fair treatment between foreign and domestic firms. Since 1985, foreign-invested enterprises have been exempt from paying the tax. Although this amendment marks a significant change in commercial tax laws, it is not expected to severely impact foreign investments.

These new applicable taxes are to assist with urban maintenance and construction, and are rated at  7 percent for urban areas, 5 percent for counties (towns), and 1 percent for other regions. There will also be a 3 percent surcharge for local fees that must be paid by both foreign and domestic companies. The calculation for these taxes would be the total turnover tax liability (including value-added tax, business tax and consumption tax) multiplied by the corresponding tax rate.

These new taxes will need to be accounted from December 1 in the monthly filing; the first filing period will be in the first 15 days in January, 2011 for the December tax return. Company accountants should begin preparation for the calculation of these additional fees, inform the overseas head office, and calculate the additional amounts due.

For assistance with the calculations of these new tax liabilities, or for clarification over administration, please contact the Corporate Accounting Services division of Dezan Shira & Associates at tax@dezshira.com. The practice maintains 10 offices in China, the firm’s brochure may be downloaded here.