While working in Shenzhen, I encountered such problem: Once upon a time, there was a rep office due to the fact that it has no accounting books, financial statements, the tax authorities refused to de-register the said office until all the accounting books and records, financial statements were ready. The office finished it in gluing binding for those relevant documents. In Shanghai, I met another case, the rep office has no accounting books and but it proposed to apply for de-registration. I asked the counter service agency, how can we handle in such situation, if there is no books and/or financial statements. The counter agent replied in a normal way: rep office receive no income, how come is that a transaction arise for booking? How will the financial statements be prepared? ...... I was stunned at the same time, doubted my professional standards. Am I wrong? We usually hear the words from those who deal with tax earnestness: is it needed that to set such strict requirement for de-registration rep office? As rep office do not have books, they do not know their general expenditures ....... That is the fact that, in general, most rep office has no accounting books abounded. I wondered: how is the tax reporting data comes from for each quarter? For the annual income tax, the final settlement report, how can it be prepared?
State Administration of Taxation promulgated in 2010, the State Administration of Taxation on the issuance of "Tax Resident Representative Offices of Foreign Enterprises Interim Measures, "the notice ( Guo Shui Fa [ 2010 ] No. 18, hereinafter referred to as the new approach ) it clearly states: Firstly: All representative bodies should, in accordance with the relevant laws, administrative regulations and the State Council, financial, tax authorities regulations set the books, in compliance with the legal. Valid certificate bookkeeping that can be accounted for and shall be in accordance with the actual performance of the functions and risks that match the principle. It should calculate income and taxable income accurately. This is the general requirement that all representative bodies should strive to achieve with sound financial accounting, accurate accounting of income and to file income tax returns honestly.
Secondly, if the books is incomplete or is not an accurate accounting of revenues or costs, and if it is inability to act in accordance with the new provisions of Article 6 that requires the representative body for factual reporting, the tax authorities are entitled to take the following two methods to assess their taxable income :
- (A) Expenditure on conversion by way of income: To reflect expenditure accurately but not reflect the revenue or the cost of fees accurately.
- (B) The way approved by gross income to settle the taxable income: It can accurately reflect the income but it does not accurately reflect the cost of fees of the representative bodies.
On 1 March 2011, it started in a new introduction of the "Management Regulations", Chapter 1 Article 7, it stipulates: Representative office shall set up accounting books, true account of foreign companies and the representative organ that with its costs allocated, funds, income and expenditure, and place them in the representative office.