“The Chinese government’s vow to increase tax scrutiny of foreign companies has sent firms rushing to tax advisors ahead of the implementation on Feb. 1 of new rules designed to rein in cross-border tax avoidance.” Michael Martina of Reuters opens his article with this statement. But what do these new tax laws imply and how can foreign companies deal with this development?
Some might say China is modernizing its tax regime in order to better suit international standards; however it also fits a different development. The Chinese government is currently busy increasing the protection of Chinese consumers. The new tax rules and the vow to stricter follow up on these rules are also appointed to the development of a more regulated and enforced business environment for foreigners.
Whatever the reason for the changes in tax law, it is crucial for foreign companies to make sure they obey the Chinese law. Foreigners are a guest of China and like any other guest it is reasonable to obey the rules of the host you visit. Already last year before the tax changed tax rules, Microsoft Corp has been hit with back taxes of 140 million dollar. With the upcoming changes also other (smaller) foreign companies might face challenges on related issues.
Apart from changes in tax rules and the promised increase in tax scrutiny, the Chinese business environment is constantly developing itself. 1421 Consulting Group (1421), R&P Lawyers and VISTRA Shanghai have noticed these upcoming changes in the business environment for foreign companies To assist companies in staying viable for the Chinese market, 1421 and its partners has developed a “Chinable Business Scan”.
With the Chinable Business Scan, 1421 aims to support and prepare western companies who owns a WFOE or JV of all sizes of being compatible for the Chinese business environment. Besides checking a company’s legal and tax framework, this business scan maps a company’s contracts, the company structure, HR related issues and conducts a basic financial check-up. In short it is a company health check which every company should objectively perform at least every 3 years. This tool is very important for stakeholders, legal representatives and board members to ensure that their investment has no hidden liabilities.
Looking at the Chinese market, it offers many chances to succeed. For over 30 years China has been a growing economy. Wages are still comparably low, people are willing to work hard and companies are not afraid to invest. In combination with a good product of service, the future success of western companies mainly depends on aligning their strategy to the ever-changing business environment of China. Whilst 1421 can ensure this alignment for your company, you can remain focused on your own company’s activity in order to remain successful in the opportune Chinese market.
Feel free to contact us for more details on the 1421 Chinable Business Scan.
