LehmanBrown advises South East Asian companies to embrace new taxation regulations in China

Addressing seminars in Singapore and Malaysia this week, Cameron Hume and David Dai of LehmanBrown Ltd., a China focused accounting, tax and business advisory firm, advised delegates to move quickly but smartly to gain competitive advantages emerging from the recent and imminent radical tax and regulatory changes sweeping across China.

Singapore (PRWEB) August 7, 2004 -- Addressing seminars in Singapore and Malaysia this week, Cameron Hume and David Dai of LehmanBrown Ltd., a China focused accounting, tax and business advisory firm, advised delegates to move quickly but smartly to gain competitive advantages emerging from the recent and imminent radical tax and regulatory changes sweeping across China.

Advising the seminar delegates comprising of Accountants, Lawyers and Industry Leaders, Hume and Dai emphasized the need for foreign invested enterprises to have a clear understanding of their short, medium and long term goals in China so as to ensure their corporate structure takes advantage of the new changes, but also provides the flexibility to move quickly as the market opens up further. The new regulations are providing foreign invested enterprises (FIEs) with some real cost and tax savings, as long as they get their structure right from the start", advised Dai.

Hume went further to say that LehmanBrown sees fantastic opportunities for foreign invested firms to gain immediate competitive advantages in the fields of manufacturing-for-export, trading, retail, wholesale and sourcing". At the same time, he warned that the new regulations are still in their infancy and require further ironing out before they come into full effect. For this reason, it is important to open-up dialogue and keeping in close contact with the government bodies like MOFCOM, AIC, Customs Bureaus, and the State and Local Tax Bureaus to understand how the new rules are being interpreted and implemented on the ground."
The increase in interest and awareness of Chinese taxation by Singaporean and Malaysian companies has been brought about by recent changes in laws relating to VAT refund rates, Representative Office taxation exemption, VAT deductibility for fixed assets in some special circumstances, VAT for process manufacturing and more stringent transfer pricing regulations.

However, Dai warned that with all the changes, Rules and regulations are changing so quickly in China at present that the government authorities are having difficulty in keeping up with and in ensuring consistent interpretation and application of the changes at both a State and Local level". Such concerns come after a radical change of taxation of Representative Offices (ROs), with the issuance of the new circular Guo Shui Han [2004] 568, in May 2004 which reinstated the ability for ROs of principal suppliers to apply for tax exemption status. From LehmanBrowns experience, successfully applying for the exemption status requires a lot of hard-work, good working relationships with the taxation bureaus to understand the application and, most importantly, patience."

The recent changes in regulations and invoice-issuing administration have certainly strengthened the compliance of VAT payment, and they have also made VAT refund procedures more transparent and the turnaround time to receive the refunds have fallen significantly. This is good news for both the Chinese tax authorities and Foreign Investors", explained Hume.
Asked by delegates as to the anticipated changes in VAT regulations, Hume believed there would be more pressure on the government to expand the scope of VAT to include industries such as transportation, construction, and communications, but that the anticipated move to allow deductibility of fixed assets for VAT purposes will provide huge incentives for foreign companies to source their capital and machinery from China. What we are also now seeing is companies revisit their operating structure in China with the proliferation of process manufacturing which can deliver enormous benefits for export manufacturers."