‘Permanent establishment’ plan focuses on foreign employers that make money from expatriates

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Corporate counsel in foreign companies voiced concern in July over a plan mooted by the State Administration of Taxation (SAT) that would have necessitated far-reaching changes to the employment arrangements for expatriate staff. The SAT was reportedly of the opinion that where expatriate staff are employed by an overseas entity and seconded to China, this should create permanent establishment in China of the overseas entity. If permanent establishment was found, the overseas employer would be liable for PRC enterprise income tax on a deemed profit basis, and possibly also for business tax. Lawyers believe this would have the effect of adding 10% to 15% to the payroll costs of most expatriates.

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