China\u27s New Cooperative Joint Venture Law

In the decade since the People\u27s Republic of China (PRC) began opening its doors to foreign investment in the late 1970s, several vehicles have been developed through which foreign firms may invest in the PRC to undertake manufacturing or service projects. The first vehicle to be officially offered to foreigners as a means for investment was the equity joint venture (EJV), which was given its legislative basis in a brief 1979 statute, since supplemented by detailed implementing regulations and substantial other legislation. The EJV is a limited liability4 joint venture company formed by one or more Chinese enterprises with one or more foreign entities for a specified period of time,5 pursuant to a joint venture contract, articles of association and related documents. The parties make contributions in cash and/or in kind6 to the joint venture company\u27s registered capital in an agreed upon ratio7 and share profits, losses and distributions upon dissolution in accordance with that ratio. 8 The joint venture company is treated as a legal person under Chinese law9 and pays taxes,10 signs contracts and undertakes other legal and economic activities in the name of the company and not in the names of the joint venture parties

Tax Aspects of Doing Business with the People’s Republic of China

Before 1979, the People’s Republic of China did not have a logical system of taxing foreign business. That summer, a few selected American tax professors met with Chinese tax officials to explain the complexities of source rules, foreign tax credits, and tax treaties. That gave Chinese officials a detailed knowledge of intricate tax issues, and they have used this knowledge to develop China’s new tax system. Since 1979, China’s tax structure has conformed to generally accepted international structures with the adoption of three important taxes affecting foreign business activity. At first, China’s statutes and regulations did not clearly explain the tax consequences of common business transactions as a result of differences in statutory interpretation by Western-trained lawyers. Recently, Chinese guidance has become more lucid, which makes tax planning more feasible. Going forward, foreign businesses should avoid zeroing out their Chinese income tax (which should be creditable against their home country income tax) in order to build goodwill by contributing to the Chinese government. The goodwill gained from paying taxes to China will provide potential future business opportunities in the country. This article presents a general overview of the Chinese tax structure for foreign businesses. Part II discusses the individual income tax, the industrial and commercial tax, the joint venture income tax, and the foreign enterprise income tax. This section also briefly examines property taxes and taxes on vehicles and shipping income. Part III analyzes the effect of these taxes on business in China. This section reviews the practices of Chinese tax authorities regarding: (1) representative offices and business agents, (2) consignment sales and service centers, (3) compensation trade, (4) cooperative ventures, (5) contracted projects, and (6) equity joint ventures. The article concludes by explaining that while the major aspects of China’s foreign business tax structure are in place, tax officials will likely deviate from the mainstream to help China emerge as an intellectual world leader on tax issues

Public Law, Private Actors: The Impact of Human Rights on Business Investors in China Symposium: Doing Business in China

Should companies invest at all in countries, like China, where severe human rights abuses are pervasive? If they do invest, should they restrict their operations to areas of the country that have a comparatively good human rights record? Are there basic principles that transnational companies should observe to ensure, at a minimum, that they do not become complicit in a host government\u27s abrogation of universally-recognized human rights? Should such principles be enforced by Executive or congressional fiat, or should companies take primary responsibility for policing themselves? How can companies that wish to factor human rights considerations into their business decisions be assured that they will not pay a price in lost investment opportunities or reduced market share? This article addresses these questions in light of relevant principles of international law and U.S. foreign policy. A central thesis of this article is that businesses that may or do invest in China bear a responsibility to ensure that their actions do not, however inadvertently, contribute to the systematic denial of human rights in the PRC. We believe, moreover, that international human rights law provides an objective basis for identifying those responsibilities

Public Law, Private Actors: The Impact of Human Rights on Business Investors in China Symposium: Doing Business in China

Should companies invest at all in countries, like China, where severe human rights abuses are pervasive? If they do invest, should they restrict their operations to areas of the country that have a comparatively good human rights record? Are there basic principles that transnational companies should observe to ensure, at a minimum, that they do not become complicit in a host government\u27s abrogation of universally-recognized human rights? Should such principles be enforced by Executive or congressional fiat, or should companies take primary responsibility for policing themselves? How can companies that wish to factor human rights considerations into their business decisions be assured that they will not pay a price in lost investment opportunities or reduced market share? This article addresses these questions in light of relevant principles of international law and U.S. foreign policy. A central thesis of this article is that businesses that may or do invest in China bear a responsibility to ensure that their actions do not, however inadvertently, contribute to the systematic denial of human rights in the PRC. We believe, moreover, that international human rights law provides an objective basis for identifying those responsibilities

The Evolving Tax System of the People’s Republic of China

In 1980, the People’s Republic of China adopted an income tax on joint ventures and individuals. These two taxes have created great speculation since the passage of the Chinese Joint Venture Law in 1979, which created rules and procedures for foreign investors. Much of this interest arises due to the common misconceptions surrounding China’s tax structure. After the enactment of the two aforementioned taxes, eleven distinct taxes exist in China. This article examines the consolidated industrial and commercial tax and various income taxes, which are most relevant to foreigners. Section I describes the consolidated industrial and commercial tax. Section II explains the industrial and commercial income tax. Sections III and IV detail the individual income tax and joint venture income tax. Section V analyzes the tax regime that applies to China’s “free trade” zones. Section VI discusses whether the individual and joint venture income taxes can be credited as a United States foreign tax credit. This section further examines the modifications necessary for China to implement its own foreign tax credit, and the differences between the OECD and United Nations tax treaty models. The article concludes by lauding the important achievement of implementing new tax laws on joint ventures and individuals, and explaining that the Chinese tax system will become more sophisticated as China’s tax officials become more experienced

Do Chinese Income Taxes Qualify for the U.S. Foreign Tax Credit

The desirability of doing business in any foreign country may turn on the ability to avoid double taxation. This issue is a serious concern for foreign countries. For example, in China authorities have expressed a willingness to pursue a treaty specifically removing the problem of double taxation regarding a proposed petroleum or mineral exploitation tax. However, without such a treaty, U.S. taxpayers will be left with an important question: Will the Chinese income taxes be creditable against their U.S. income taxes? A U.S. foreign tax credit is generally allowed for foreign income taxes paid or accrued, or for foreign income taxes paid in lieu of income taxes. This credit is allowed to U.S. citizens, residents, and corporations for foreign income taxes levied directly on income. A U.S. corporation can also claim a credit for any income taxes levied on the income of a foreign corporation from which it receives dividends. This article looks at two taxes that China imposes: The Individual Income Tax Law (IITL) and the Joint Venture Income Tax Law (JVITL). The IITL provides different tax treatment depending on whether you are a resident or nonresident, and the treatment of a resident depends on the length of the stay. The JVITL taxes joint ventures operating in China on their world-wide income derived from production, business, and other sources. A Chinese income tax that is not creditable for the purposes of the U.S. foreign tax credit would tend to discourage United States investment. It is presumed that the Chinese expect that both the JVITL and the IITL will be creditable against any income tax levied by the U.S. on income from Chinese sources. The expectation seems justified with regard to the JVITL, but doubts exist regarding certain aspects of the IITL. This article examines these Chinese taxes in more depth and whether they are income taxes under U.S. regulations, and subject to the U.S. foreign tax credit or whether they may still qualify for the credit as a tax paid in lieu of an income tax