Regarding taxation matters in China, what are the typical faulty assumptions made by foreign investors?
There are three major assumptions that foreign investors often make regarding tax matters in China. The first refers to the belief that China's tax laws are simple and taxpayers can handle it all without professional help. China does have a complex set of rules regarding the tax system, which cover many aspects of Foreign Invested Enterprise's business activities in China. The State Administration of Taxation (SAT) has issued hundreds and even thousands of rulings on tax issues. Despite there still being many loopholes and in the system, non-compliance can trigger serious penalties or cause losses due to over paying as a result of not being aware of tax planning methods. The second assumption is that all tax matters in China are negotiable. In the past tax consultants may have mislead tax payers to believe that tax payers can negotiate with the relevant tax bureaus without any need to understand the SAT rulings. Negotiations can only be allowed in cases where the SAT rulings are not clear enough or the matter is in fact within the tax authority's discretion to negotiate. With the growing number of laws and regulations in the taxation field enforcement is also being enhanced, it is therefore increasingly important to know and follow them.
The third assumption is that accounting knowledge is more important than legal knowledge in dealing with the China tax regime. It cannot be enough emphasized that tax problems cannot only be solved by possessing accounting knowledge. The SAT drafts rulings in accordance with international practices, which in turn are based on legal principles. China is also a member of many tax treaties and international agreements and I obligated to consider international rules regarding foreign tax interests in China.