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Business Tax (BT) – Non-Taxable Services Performed Outside of China
Services which are to be performed outside of China are not taxable. It is critical however, that contracts of enterprises based in China, state specifically what services and charges will be entailed in China and what services and charges will be entailed outside of China. If a clear distinction is not made in the contract, all the services will be deemed to be performed in China and BT will be applied. See the following example:
The Asia headquarters for a US multinational is located in Shanghai, China. A contracted is entered into where this US firm will provide setup and installation services of certain large production systems, to an Australian company, operating in Australia only. If all of these service activities are performed in Australia, yet the contract does not indicate this, the State Administration of Taxation (SAT) could deem those services having been performed in China and require the BT be applied.
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