VALUE ADDED TAX in GREATER CHINA Risks and Opportunities

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1 VALUE ADDED TAX in GREATER CHINA Risks and Opportunities Mr. Michael Lorenz German Attorney at Law, Registered Foreign Lawyer in Hong Kong and Vietnam Lorenz & Partners Page 1

2 About Lorenz & Partners We are an international firm of business lawyers, headquartered in Bangkok since 1995, now maintaining offices in Bangkok, Frankfurt, Hong Kong, Ho Chi Minh City and Myanmar. We are specialised in legal, tax and business consulting for foreign companies investing in Southeast Asia. Our services include: International Commercial Law Mergers & Acquisitions and Joint Ventures International Tax Planning Labour Law Issues Management support Lorenz & Partners Page 2

3 Topic Overview VAT Risks and Opportunities in Greater China Double Taxation Agreements with Greater China Where is the next tax haven? Lorenz & Partners Page 3

4 Are you aware of your opportunities and risks? Lorenz & Partners Page 4

5 Greater China Including: Mainland China Hong Kong, SAR Macau, SAR, and Taiwan Lorenz & Partners Page 5

6 VAT Risks and Opportunities in Greater China Mainland China VAT: when is it imposed and when to be declared? Standard VAT rate of 17% VAT is imposed on sale and import of goods and supply of certain services Reduced VAT rate of 13% for privileged products such as books and some oils VAT export refund Exporters are entitled to VAT refund for materials bought in China Risks complex Tax regulations and systems in China change rapidly VAT vs. Business Tax Replacement of China s business tax with VAT Progressive expansion of the program throughout Mainland China in 2013, target is to remove inefficient dual tax system Lorenz & Partners Page 6

7 VAT Risks and Opportunities in Greater China Hong Kong No VAT No Business Tax 16.5% profits tax Offshore taxation (0.00%) is possible Simple and easy tax system Lorenz & Partners Page 7

8 VAT Risks and Opportunities in Greater China Taiwan Two way system with Business Tax and VAT BT applies to the sales of goods and provision of services VAT system comparable to the European system (input vs. output VAT) Tax rates: VAT: 5% BT 1% -5% Certain sales and provision of services are taxed with 0% Lorenz & Partners Page 8

9 Double Taxation Agreements with Greater China Lorenz & Partners Page 9

10 General Information: On a bilateral basis, the prevention of double taxation is achieved by the conclusion of double tax agreements (DTAs). A DTA is a contract under international law between two countries which regulates the extent to which a contracting party is entitled to its local taxation, overruling its national laws. The Organisation for Economic Co-operation and Development ( OECD ) publishes and updates a model tax convention which serves as a template for bilateral negotiations regarding tax coordination and cooperation. This model is accompanied by a set of commentaries which reflect OECD-level interpretation of the content of the model convention provisions. Most DTAs are modelled in accordance with the OECD Convention. Lorenz & Partners Page 10

11 Standard Methods in Bilateral Agreements to Avoid Double Taxation Credit Method Income tax paid in one state is offsett on the income tax payable in the other state. Exemption Method Income earned in the state of source is free of tax in the state of residence. Nevertheless the resident state levys the tax from taxable income by using the tax rate that would apply if the respective income would not be exempted (progression). Lorenz & Partners Page 11

12 Double Taxation Avoidance Treaties in case of dividend and interest payments from Greater China From CHINA From HONG KONG From TAIWAN To GERMANY DTA Germany China Dividends: 10 % Interest: 10 % Royalties: 10 % No DTA Germany Hong Kong, but according to local law: Dividends: 0 % Interest: 0 % Royalties: 4,95 % DTA Germany Taiwan Dividends: 10 % Interest: 10 % Royalties: 10 % To AUSTRIA DTA Austria China Dividends: 10 % (7 % on dividends if the shareholder holds 25 % or more of the shares) Interest: 10 % Royalties: 10 % DTA Austria Hong Kong Dividends: 0 % Interest: 0 % Royalties: 3 % Maximum tax according to DTA 10 %, but effectively irrelevant because according to applicable local law 0 % No DTA Austria Taiwan, but according to local law: Dividends: 20 % Interest: % Royalties: 20 % Lorenz & Partners Page 12

13 Where is the next Tax Haven? Hong Kong: clear and easy tax system one of the world s lowest tax rates maximum tax rate for company revenues 16,5 % offshore earnings are tax exempt Lorenz & Partners Page 13

14 Where is the next Tax Haven? Singapore Progressive corporate tax from 0% to max. 17% Tax exemptions and reductions possible for newly established companies Many double taxation agreements Lorenz & Partners Page 14

15 Where is the next Tax Haven Delaware: No state corporate income tax for companies that are formed in Delaware but do not transact business there. No personal income tax for non-residents. Shareholders, directors and officers of a corporation or members or managers of an LLC don t need to be Delaware residents. Stock shares owned by persons outside Delaware are not subject to Delaware taxes. Lorenz & Partners Page 15

16 Thank you for your attention! Any questions? Lorenz & Partners (Hong Kong) Ltd. Unit 1003, 10 th Floor, Kinwick Centre 32 Hollywood Road, Central Hong Kong, S.A.R. Tel.: Lorenz & Partners Page 16