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Chill Out Tax Man. The China WFOE Is In The Hopper.

By Dan Harris and Steve Dickinson

Now I know that one of the overriding themes of this blog since its inception is that China is stepping up its enforcement of laws against foreigners, but I am getting a strong vibe that things just ratcheted up another notch or two. Two times in the last few weeks, two clients in two different industries and two different cities, but both of whom we are in the process of registering Wholly Foreign Owned Entities (WFOE) reported how Chinese tax authorities had come by to complain about their not paying their taxes. In both cases, our clients informed the tax authorities that they were just in the process of starting out and explained how they were waiting to hear back on their WFOE applications. In both cases, the tax authorities told them to hurry it up, which is great except the company registration people seem to be taking longer than ever these days. Never before had a client of ours been approached by the Chinese tax authorities during the pre-WFOE stage. I see this as part of the tax crackdown against foreigners I discussed in the post, "China's Top 5 Business Law Trends For 2010:"

3. China will increase its tax collection efforts. This has been going on at a rapidly accelerating pace over the last six months or so. If your China operations are not making a healthy profit, do not be surprised if the government imputes healthy profits to it. In particular, the government will look very closely at your transfer pricing and in many cases it will not like what it sees.

We also just got two denied China visa calls and we usually only get two or three of these a year. Both came from people insisting they had been getting China visas for years without any problem, and that nothing should have changed for them. What is going on here? Is this just a payback for America's recent foreign policy? If so, is this being coordinated from Beijing, or is this just some locals expressing their own unhappiness regarding a few F-16s? Were the visa denials just a Shanghai Expo house cleaning? Or is all of this a sign of China's intention to increase the pressure on foreign businesses even further? What are you seeing/hearing out there?

Full post as published by China Law Blog on March 02, 2010 (boomark / email).