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1. Company Background

With 20 million RMB worth of otherpayables in the accounting book, the medical device manufacturing company wasfacing a tremendous taxation risk. After understanding their business andanalyzing their present situation, RTF put forward the corresponding taxplanning proposal.

1) After the overseas parent companyreceives the purchase orders from the customers, local Chinese subsidiarieswill be appointed for the manufacturing and sales.

2) Based on the purchase orders fromthe overseas parent company, the subsidiary will involve in the overseas salesof the self developed and manufactured medical devices (some technology is fromabroad and part of the technology is re-developed and completed in China) andwill also provide installation, sales maintenance and technology consultingservices.

3) The contracts signed with theforeign parent company are all device sales contracts.

4) The 20 million RMB worth of otherpayables is the foreign parent company’s support to the local subsidiaryworking capital, where is recognized as technology service costs in theaccounting books.

5)The subsidiary’s business scope does notcontain Technology development and Technology consulting.

 

2. RTF Analysis

The actual business between theforeign parent company and its subsidiary can be analysed as below:

1) Technology development of medicaldevices

2) Export sales of medical devices

3) Technology consulting regardingmedical devices

The 20 million RMB worth of otherpayables can be divided into relevant contracts based on the relativereasonable revenue, costs, expenses and profits of the related partytransactions.

 

3. RTF Solutions

1) Add the following business areas,technology development and technology consulting, in the business scope, whichis one of the requirement for the application of the financial subsidy.

2) Redraft the contract between theforeign parent company and its subsidiary, whereby separating the technologydevelopment and the technology consulting and complying with the technologycontract requirements. 

3) File the contract at theTechnology Market Management Office (TM).

4) Redo the accounting wherebyclassifying the overseas revenue based on sales, technology development andtechnology consulting so that it is consistent the relative contracts, invoicesand revenue.  

5) File the technology developmentand technology consulting contracts on the Commission of Commerce (COC) 

6) Recognize the overseas technologyrevenue based on the signed contract and clear off the other payables. 

 

4. Results 

After the planning andimplementation, the company enjoyed the following incentives;

1) Overseas service income VAT exemption(Cai Shui [2014] No. 49)

2) VAT refund on previous 3 years’ overseas service income(Cai Shui [2014] No. 49)

3) COC financial subsidy (for every 1USD get back 0.1 RMB). The final subsidy amount received by the company was300,000 RMB

4) Advanced Technology ServicesEnterprise (ATSE) qualification, whereby the company enjoyed reduced CIT rateof 15%

Most of the companies in the medicaldevices industry can enjoy the above tax preference policy, but many companiesare not familiar with the policies.

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