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.
 

Recently I experienced something that moved, astonished and excited me. I’m not sure whether Shenzhen’s Civil Society is fully here yet, but at least I think Civil Society in Shenzhen is becoming a part of our day to day reality.
 
I got a call late last Friday afternoon. “Are you Ms Pan, this call is from Shenzhen Public Security Bureau”. What? I’ve never got their call before. My first response is a little bit strange. ” Yes, I am. What’s up? I’m in trouble ?”

”No, no, sorry to interrupt you. Can I take you a few minutes to response to your queries and advice to the People's Government of Shenzhen Municipality hot line a few weeks ago. Your inquiries were forwarded it to our department for us to follow up on. Firstly, many thanks for your participation actively and good advice.”   “Oh, that’s ok”, I started to put my heart at rest
 

Like we always tell our clients, China is changing fast everywhere.  Now, it is time for the government to throw a loop around the Personal Income Tax ( “PIT” in short) application more strictly.  Starting in 2002, the government started to develop the new systems for collecting PIT and implemented them in some pilot cities in the past years.  It came to Shenzhen in 2008 and started be used to for officials and employees in big companies. The definition of big companies is the company whose amount of PIT submitted on behalf of employees is over RMB100, 000 per year. It will spread to smaller companies and then finally cover all the companies in Shenzhen.
 

When you are doing business with Chinese company in China, there are ten key points you should know when making and checking a contract.

1) The contract must have Chinese Version
The Chinese Government will not help you to translate your contract from French or Spanish to Chinese when they read it. Only the contract with Chinese Version can be acceptable and looked as the valid document in China.

2) Sending money to your vendor’s appointed bank account means nothing in China
There is a different concept between western country and China about what legal force it can represent when sending money to another party. In China, it could not certify there existing any trading relationship between the funds receiver and sender if you don’t have a contract. The money you send to the vendor will disappear in the air without any reason if there is not a legal contract can protect you.

3) Chop

Since the beginning of 21st Century, the father of EURO, Mr. Robert A. Mundell, predicted that the EURO, USD and ACU (“Asia Currency Unit”) will divide the world into three main areas in about 10 years. Now, the time line is coming. China sent out a signal to the world to remind everybody what he said had been correct.

The Chinese Government publicized and implemented a new rule about RMB use in cross-border transactions directly with 10 countries in Asia, HK Special Administration Region and Macao since July 1, 2009.

For example, firms in Hong Kong will be allowed to use the yuan to settle trades with their counterparts in five major mainland cities as soon as this month. Signed by the People’s Bank of China and the Hong Kong Monetary Authority on Monday, the pact with Hong Kong to use the yuan as a settlement currency for trade is the latest step toward China’s long-term aim of internationalizing the yuan. At present, the yuan is not fully convertible on the world market.