China Taxes: Serious Now And Getting Seriouser

Yes, I know seriouser is not a word, but I like the emphasis.

One of the things we are always "talking" about here is is China's increasing legalization, both in its enacting new laws and in its stepping up its legal enforcement. It seems that every month for the last year or so, China's governments have been increasing their crackdown on unregistered foreign companies.  For more on this, check out my previous posts (subtly titled), "Urgent Alert -- Register Your Company in China NOW" and "Urgent Alert -- Register Your Company in China NOW, Part II."  Certainly one of the primary reasons for China's increased crackdown on unregistered foreign companies is to bring those companies onto China's tax rolls. 

China has a new tax law set to take effect on January 1, 2008 and I expect China's crackdown on unregistered foreign companies to continue accelerating up to and through that date.  Your only solution to this is to get legal.  Fast. 

Yesterday's Wall Street Journal has an article warning about the new tax law's impact on companies based in countries without double-taxation agreements with China.  The article is "Chinese Law May Snare Firms Based in Tax Havens," [subscription may be required] and it warns that many tax havens, including the British Virgin Islands, Barbados, and Mauritius, do not have double-taxation treaties with China, putting companies from those countries at risk of being taxed on their world-wide income under China's new tax law: 

Under the new unified enterprise income-tax law, which is expected to come into effect on Jan. 1, 2008, any company that makes decisions at operations in China or effectively manages operations there could potentially be classified as a tax resident even if the company is not incorporated in China, according to Deloitte.

Companies based in the British Virgin Islands, Barbados and Mauritius, among other tax havens, are notably at risk, and potentially liable to pay China's 25% tax on world-wide income, because those centers don't have double-tax treaties with Beijing, Deloitte said.

"This seven-month window is critical," Chee Weng Lee, a partner of tax services at Deloitte Touche Tohmatsu, told a media briefing Thursday. "Companies operating in the British Virgin Islands and other centers need to look at their operations."

According to the article, China has double-tax agreements with more than 80 countries. 

Get thee to thine accountant.  Faster.