Establishing in China By: Vincent Sacilotto, Lowe Thunberg and Therese Nilsson

Introduction US software company Activities – computer games – accountancy programs Establishing in Shanghai R&D center

Political situation Politic system – Republic Competences and decision making – State level – Shanghai level

Economic situation Gross domestic product per capita – $ Historically: manufactory Current: mixed business activities Infrastructures Business in Shanghai

Tax legislation - Tax treaty network US tax treaty network: 50 China tax treaty network: 100 The treaty between US and China: – 1984 – UN Model

Tax legislation - Important aspects in the treaty Residence PE Allocation rules – Business profit – Passive income Method article

Tax legislation - Residency Domestic: Place of effective management Permanent establishment Tax treaty: Article 4.1 Article 4.3

Tax legislation - Corporate tax base and tax rates Worldwide income Source taxation Standard company income tax – 25 %

Tax legislation - Passive income Domestic law – Shanghai Dividends 10 % Interest:10 % Royalties: 10 % – US WHT 30 % “Participation exemption” Tax treaty

Tax legislation - VAT or sales tax 17 % VAT rate Special treatment of software companies Exemption on exportations VAT on fixed assets can’t be deductible

Tax legislation - Tax incentives Qualified software enterprises – 2y exemption/ 3y reduction Transfer of US software copyrights – Exemption/ deduction Special VAT treatment R&D super deduction – 150 % deduction

Tax legislation - Double taxation (domestic law) Credit method General limitations – Same kind of profits – Limited to Chinese tax – Country per country limitation Excess can be carry forward for 5 years

Tax legislation - Double taxation (Treaty law) Allocation rules – Article 7 Business profit (and art. 5 PE) – Passive income Method – Article 23 Credit

Tax legislation - Anti- avoidance rules Transfer pricing CFC-rules General anti-avoidance rules in China Thin capitalization Foreign- exchange controls Disclosure requirements Tax treaty - Exchange of information

Tax legislation - Exit taxes and tax inversion Transfer assets from US – Market value – Defer tax Transfer assets from Shanghai – Defer tax Less US tax and more incentives in Shanghai – Subsidiaries profit are taxable when transferred home

SWOT-Analysis - Strength Expertise in the US market A strong geographical location with high traffic input Human resources – 300 qualified developers

SWOT- Analysis - Weakness Lack of knowledge of Chinese market Unknown by the consumers No strong relationships with retailors

SWOT-Analysis - Opportunities Tax incentives Tax planning Cluster of software companies in “Zhangjiang” High demand for product or similar merchandise Low cost

SWOT-Analysis -Threats Risk for double taxation Administrative burden – Tax administration with “assertive approach” – Controls Competition Political & economic situation