January 2010

Chinese Enterprise Income Tax Changes in the Year of the Tiger By Ella Xu

Enterprise income tax (“EIT”) should be a main source of tax income for the Government here. However, because of some twists and turns in the Chinese Corporate law, this tax has been substantially avoidable if you closely monitored your cash flow.  
 
As such, a substantial number of small to medium sized enterprises have historically chosen to post their quarterly or year-end profits at zero, thus allowing them to avoid paying any EIT – legally. This is especially common among foreign direct investors with an off-shore holding company owning their Wholly Foreign Owned Enterprise (“WFOE”) here in Mainland China.