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How to relief China Tax #3

By Cyrus, on March 29th, 2010
Number of View: 1310

This strategy often use by Taiwanese in China, consider as the largest tax escape plan in which giving local tax authority lots of troubles in chasing tax!

Smart and cunning businessman will never want to pay high tax hence they will try all means to escape tax and find a scapegoat. Lots of factories located at Guangdong province Dongguan run away in one night leaving behind lots of debts, workers’ salaries and tax to the local juridical person (法人) but the actual boss easily get away, why? Reason because from the starts the boss already plotted this loophole in China law and they could easily setup another factory at different location using different company name and new local juridical person, at the same time maintaining their current business and clients. This allows them to earn a fortune on local supplier’s payment, workers’ salaries and tax from their old factory. Therefore many foreigners like Taiwanese boss never use his name in China business registration because is easy for them to run away!

So above is a tax escape on unethical behavior but there is also an ethical behavior using same philosophy on above tax escape under legal means. Most foreign enterprise entitled to 2 years tax free and 3 years tax relief  (三减两免) on China corporate tax policy, encouraging and attract foreigners to setup plant in China during China reform and economic opened to world market. So how to escape tax? Example some foreign enterprise after the enjoyment on tax relief will setup new factory again at new location but using different company name under the same or different juridical person. But these enterprises would pay back all the workers’ salaries, tax and local suppliers’ payment before they relocate. This could maintain the connection and relationship (details could refer my article on “China Connection and Relationship”) with the locals from the suppliers, government sectors and factory staffs instead spending another fortune to redevelop and retrain again!  New company name is mandatory under the law to entitle to 2 years tax free and 3 years tax relief on China corporate tax policy again! Using the same or different foreign juridical person depends on company requirement, remember this strategy is mandatory to use foreigner as the juridical person of the company!

Although relocate factory is a very troublesome task but saving another 2 years tax free and 3 years tax relief, which is more cost saving! In addiction this method also give foreign enterprise another advantage whereby factory could re-sign existing staffs’ labor contract, instead restricted by China Labor Authority on lifetime contract and lifetime compensation, killing 2 birds with 1 stone! More details could refer to my past article on “How to tackle China Labor Laws #1″.


 

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