While the tax system has essentially the same elements as the system you are used to, the differences are quite pronounced.  For example, the lack of official receipt (the fapiao) means you can’t apply any deduction regardless of how bona fide the transaction is.  Consider for a moment how the purchase of a computer in your country for use in China is effected – no fapiao, no deduction.

More than anything, you need to have a sounding board before you undertake significant transactions to get a proper perspective on just what your next move should be.  Paying the right taxes and paying them on time should be part of this strategic reflection.

Perhaps the only country in the world with such a complex arrangement involving ‘official’ receipts, the fapiao presents its own unique challenges. Firstly, business in China – local and foreign alike – must only issue the official receipt/fapiao should they wish to claim the full amount as a tax deduction. To make matters even more complicated, the path to claiming a non-Chinese expense in your Chinese books is no easy matter. Many companies claim expenses from external entities only to have them declined by the Chinese authorities on the grounds they are transparently trying to avoid tax (ie. expense is not real – just a contrivance to move money off shore).

In most countries payroll is a standardised, simple calculation requiring little or no interpretation. In China, it is far from that. Each province, each city, each district has it’s own subtle interpretation of how staff payroll is calculated. Consider also that the calculations for local employees can be different to that of foreign employees and you have a layer of complexity that most likely doesn’t occur in a new market entrant’s own country.

And this is just standard payroll – what about the treatment of overtime or the way bonuses should be paid to pay the minimum amount of tax on the bonus that a company should?