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In accordance with the “ Notice on unification of Urban Construction Tax and Educational Surtax on domestic company, foreign company and individual ” issued by the State Council dated Oct 18th 2010. Starting from Dec. 1st 2010, foreign company and foreign representative office will be taxed on Urban Construction Tax and Educational Surtax. All laws and regulations on Urban Construction Tax and Educational Surtax applied to domestic company will also be applied to foreign company and foreign representative office.
The formulas are as follows:
Service Company:
Urban Construction Tax = Business Tax * 7%
=Revenue * 5% * 7%
Educational Surtax = Business Tax * 3%
= Revenue * 5% * 3%
e.g. If the revenue of a service company is RMB10000, the following taxes are applied:
Previous policy: Business Tax = 10000 * 5% = 500
River Course Management Tax = 500 * 1% = 5
Total tax = 500 + 5 = 505
New policy: Business Tax = 10000 * 5% = 500
River Course Management Tax = 500 * 1% = 5
Urban Construction Tax = 500 * 7% = 35
Educational Surtax = 500 * 3% = 15
Total tax = 500 + 5 + 35 + 15 = 555
Trading company:
Urban Construction Tax = VAT * 7%
Educational Surtax = VAT * 3%
e.g. If the VAT of a trading company is RMB10000, the following taxes are applied:
Previous policy: VAT = 10000
River Course Management Tax = 10000 * 1% = 100
Total tax = 10000 + 100 = 10100
New policy: VAT=10000
River Course Management Tax = 10000 * 1% = 100
Urban Construction Tax = 10000 * 7% = 700
Educational Surtax = 10000 * 3% = 300
Total tax = 10000 + 100 + 700 + 300 = 11100
Conclusion: Under the new policy, there will be an additional tax of RMB1000
Foreign Representative Office:
Urban Construction Tax = Business Tax * 7%
= Revenue converted form expense * 5%* 7%
= Expense / 0.8 * 5% * 7%
Educational Surtax = Business Tax * 3%
= Revenue converted form expense * 5% * 3%
= Expense /0.8 * 5% * 3%
e.g. If the expenses of a foreign representative is RMB10000, the following taxes are applied:
Previous policy: Business Tax = 10000 / 0.8 * 5% = 625
River Course Management Tax = 625 * 1% = 6.25
Income Tax = 10000 / 0.8 * 15% * 25% = 468.75
Total tax = 625 + 6.25 + 468.75 = 1100
New policy: Business Tax = 10000 / 0.8 * 5% = 625
River Course Management Tax = 625 * 1% = 6.25
Income Tax = 10000 / 0.8 * 15% * 25% = 468.75
Urban Construction Tax = 625 * 7% = 43.75
Educational Surtax = 625 * 3% = 18.75
Total tax = 625 + 6.25 + 468.75 + 43.75 + 18.75
= 1162.5
Conclusion: Under the new policy, there will be an additional tax of RMB62.5
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