Under the new policy, it explicitly abolished those in the past, a number of documents which is on behalf of tax-exempt organizations or under the non-taxation requirements and provisions of the tax authorities, that around the representative enterprise (office) which is no longer accepting corporate income tax, exemption approval is also required in the past for cleaning. But now, under “Guo Shui Fa” [ 2010 ] Document No.18, it is already approved prior to release tax representative office should re-evaluate whether it continues to comply with the tax exemption conditions or those stipulated in the agreements. If so, it should submit as soon as possible to the tax authorities for tax exemption. Otherwise, the representative must honestly declare the actual profit or declare in accordance with the approved method of levying corporate income tax.
Tax experts said that it does not mean that the new policy canceled all foreign representative offices for duty-free treatment, but further standardize the management of tax relief offices. Because the new policy stipulates that office needs to enjoy tax treaty benefits that should be handled in accordance with the relevant tax treaty, or in the event of declaration, the related one to the taxpayer, then pass to the relevant provisions of the competent tax authorities.
Under the existing policy, there are two types of the resident representative office (office) that is under treaty benefits :-
The first category are:- permanent representative offices (office) under the agreement shall not constitute a permanent establishment but may declare and pay enterprise income tax in China.
According to China, it has signed bilateral tax agreements (arrangements) and "State Administration of Taxation on whether the Resident Representative Offices of Foreign Enterprises constitute a Permanent Establishment of the Tax Treaty Issues of Interpretation of the Notice" ( Guo Shui Han  No. 607 ) of the regulations, if foreign companies set up six representative business in China, it does not constitute a permanent establishment.
These services include:- designed for storage, display or delivery of goods or merchandise that belongs to the enterprise purpose use of facilities, designed for storage, display or delivery of the purpose of goods or merchandise belonging to the enterprise inventory, specifically for the purpose of processing by another enterprise the preservation of the corporate stock of goods or merchandise, specifically for corporate purchasing goods or merchandise or of collecting information for the purpose of a fixed place of business solely for any enterprise, any other activity of a preparatory or auxiliary purpose of a fixed place of business and so on.
Experts said that the proposed tax-exemption under the Tax Treaty, representative offices, and the tax authorities must provide sufficient evidence and information to prove that they are engaged in the business are "preparatory, auxiliary activities." This is the actual conduct of operations for the existence of representative offices concerned, it may be very difficult.
The second category involves international transportation revenues, representative may apply for tax treaty relief from taxation.
In China's foreign Tax Treaty, it provisions govern maritime and air transport. In our country and other countries, the sea or air exchange of letters signed specifically, if the provisions of a contracting state in the other contracting state obtaining tax-exemption income by sea or air, then the residents of that state sea and air transport companies in this offices can apply for tax exemption.
Exemption are generally involves the mutual exemption of income tax. If not expressly provided free of turnover tax, it cannot be exempted from sales tax treatment.
For example, according to the Chinese government and the Singapore government, both signed agreements to avoid double taxation on Singapore Airlines in our country that engaged in international transport operations to revenue and profits, our country were exempted from business tax and enterprise income tax. In other words, as Singapore Airlines established representative offices in China, its head office in China has to carry out all aspects of the transportation business by providing services to customer it may apply for exemption from business tax and enterprise income tax treatment.
This article was introduced by Deep Blue : www.dbhk.org.cn