Doing Business in China - A Primer

An overview is provided of income taxation for foreign investors investing in Chinese operations. A foreign invested enterprise (FIE) is a Chinese entity that has foreign investment and may take the form of a wholly owned foreign entity, an equity joint venture, or a contractual or cooperative joint venture. The government approval process for FIEs is essentially the same. The supreme legislative authority in China is the National People's Congress. However, the State Council has considerable authority to promulgate administrative regulations. The Chinese corporate tax system is divided into 2 separate systems, one for FIEs and foreign enterprises on one hand, and domestic enterprises on the other. Companies in the start-up phase need to consider tax registration, pre-operating expenditures, net operating loss, and tax exemptions and reductions. General corporate tax issues involve depreciation, amortization of intangibles, and use of inventories. An enterprise must calculate taxable income on an accrual basis. An enterprise may account for bad debts using the specific charge-off method.