The Tax Analects of Li Fei Lao

Laurence E. 'Larry'

Description

This is a down-to-earth explanation (with the author's own cartoons) of how to do business and cope with the tax laws of 9 jurisdictions of Asia. Initially published in 2009, this critically acclaimed book explains how to start a business, how the business will be taxed, how the owners/participants will be taxed, mixed in with humorous foibles about life in Asia as an American expat.

Sujets

• Taxation
• Droit et juridique
• Law

Informations

• Publié par: eBookIt.com
• Date de parution: 21 février 2013
• Nombre de lectures: 0
• EAN13: 9781456607104
• Langue: English

Extrait

The Tax Analects
of Li Fei Lao

Asia Tax Review’s
Laurence E. Lipsher
 


Text, Copyright © Laurence E Lipsher, 2012
Cartoons, Copyright © Laurence E Lipsher, 2012
 
 
Edited by Tina Kanagaratnam
Design: Feng Lei
 
 
Published in eBook format by eBookIt.com
http://www.eBookIt.com
 
 
ISBN-13: 978-1-4566-0710-4
 
 
No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems, without permission in writing from the author. The only exception is by a reviewer, who may quote short excerpts in a review.
 
 
UPDATES: www.lifeilao.com
 
 

Produced by AsiaMedia Limited
www.asiamedia.net
 
 


 
For Katherine Lipsher
 
 
…who, in the 16 years we have been with one another, has never quite understood how or why I have developed my business but who has backed me 200 percent all the time.
 


 

 
I NTRODUCTION
The mainstream tax profession is just now learning, sometimes painfully, what business leaders have known for some time: our fledgling century does not belong to the West.
 
Money, power and influence still reside in places like New York and London — and will continue to do so for many decades to come. But there’s no denying that we’ve entered an era of intense economic globalization in which the titans of tomorrow might just as easily hail from China, South Asia, and the Pacific Rim.
 
Tax follows trade. So just as future MBA candidates rush to learn Mandarin, tax professionals around the world struggle to make sense of Asian tax systems. To their befuddlement, they are discovering exotic paradigms that share little conceptual similarity to the fiscal regimes back home.
 
Given the dearth of quality reference materials on point, the international tax community can breathe a collective sigh of relief that Laurence Lipsher has put pen to paper, creating a magnum opus that will benefit practitioners for generations to come.
 
For years, Lipsher has been the ‘go-to’ source for those seeking effective solutions to the thorniest of tax problems. He possesses a unique appreciation of not only the tax rules currently in force, but how these tax systems evolved over recent decades. That’s what sets Larry apart from the accountancy mills; he’s the guy who knows the right answer, and can concisely explain why it’s the right answer.
 
His knowledge base is genuine because he’s mastered the nuts and bolts of the Asian tax system from the inside — having now spent more than 23 years working in China and servicing clients across the region. This broad expertise is reflected in the range of jurisdictions addressed, including: China, Hong Kong, Macao, Taiwan, India, Singapore, Korea, Thailand, and Vietnam.
 
The practical benefits of this volume can be highlighted by informing readers of what they will not find in the pages that follow. You will not be exposed to the musings of an academic. Nor will you find the sanitized language of an industry spokesman. Lispher’s voice is one of real-world grit and authenticity. And no relevant topic is off limits; he tells it like it is. If that requires a frank discussion of corruption and its consequences for taxpayers, then so be it. He is at once an optimist and a realist.
 
Seldom has a book on taxation been so entertaining to read. The avatar for Lipsher’s storytelling is Li Fei Lao, who — with his sidekick Xiao Go Pi — keep the chapters flowing. His chapters are laced with smart anecdotes and humorous personal observations. Lipsher continually invents improbable subjects around which he weaves articles that attract a wide and varied readership. Who else can choose as an essay topic the kangaroo fart and meaningfully tie it into taxation in India or China? Where but from Lipsher’s computer keyboard would one find articles including tax haikus or blues riffs?”
 
Above all else, Lipsher appreciates cross-border taxation as contextual human drama. Governments tax economic activity because they must. Politicians offer tax breaks to their constituents because they must. And taxpayers will move heaven and earth to reduce their tax burden, again, because they must. Hindus would characterize the balance as reciprocal dharma, each factor tugging the other in equal but opposite directions.
 
No matter how dense the legislative and regulatory details, we never stray too far from the author’s awareness that our tax systems — and especially Asian tax systems at this moment in their evolution — reflect a complex balance of social, cultural and commercial endeavors.
 
Robert Goulder
Editor-in-Chief, Tax Analysts
Washington, DC
 



 

 
D OING B USINESS IN C HINA
When it comes to doing business in China, begin with the essentials: how to legitimately conduct business in the People’s Republic of China. What follows are the basic, lawful (and, in the last case, not really legitimate but not illegal) ways that a non-Chinese individual or business can legally function in the PRC.
 
Joint Ventures — Same Bed, Same Dreams
When I first came to China in 1986, small companies had a choice of either an Equity Joint Venture (JV, as opposed to a Cooperative Joint Venture CJV) or a Representative Office. JVs with Chinese partners were encouraged, as from the government’s point of view, this was the easiest method of bailing out the state-owned enterprise system.
 
In the mid-1990s, as soon as the wholly-owned foreign entity became feasible, the JV went out of fashion because of all the nightmare stories about what Chinese JV partners would do to your business if you didn’t have a strong presence in the JV.
 
Today, JVs seem to be back in vogue. There are several reasons for this. In some restricted industrial areas, the JV is a foreigner’s only legal method of doing business. In other areas, with methods of due diligence now at a level of sophistication such that activities can be monitored and audit trails developed, JVs are proving an effective way for the non-Chinese businessperson to maneuver through red-tape and bureaucracy. A Chinese JV partner can also help develop the venture’s presence in the local market, build a good relationship with local authorities and manage local staff.
 
But while having a local Chinese partner is no longer the stuff of nightmares, certain criteria should be in place for this type of relationship to be successful: the intended partners should share the same corporate vision and objectives (same bed, same dreams!). When considering a local JV partner, it is useful to ask yourself the following:
 
Is the partnership in accord with the management style and development strategies that head office considers most appropriate?
What will happen to your project and overall development strategy if your intended partners fail to deliver on today’s commitment and obligations?
Should the partnership prove untenable, can you shoulder the exit costs?
 
Wholly Owned Foreign Entity (WOFE)
In the mid 1990s, the WOFE took off in China. The lure of ’complete control’ (or so the participating entities felt) as an alternative to putting up with a not-so-trustworthy JV partner became almost irresistible. While the WOFE is perhaps the most preferred choice, it is often a matter of economics as to whether or not it should be utilized.
 
The greatest drawback to a WOFE set-up is the registered capital requirements, which for many businesses are prohibitive. (Be aware, however: capital requirements (and other regulations) vary widely from one locality to another — there is absolutely no uniformity here. You’ve got to know the specifics of doing business in a given territory if you want to avail yourself of efficiency in the PRC!) A secondary drawback is the repatriation of profits. The laws on this matter are likely to change, but be aware that these restrictions are greatly reduced or eliminated through use of a Hong Kong company as owner of the Chinese WOFE.
 
Foreign Invested Commercial Enterprise
FICE is the new kid on the block in terms of acceptable methods of doing business in the PRC. Established for retail, wholesale, trading or franchising business, the FICE is the prime vehicle for the nonChinese firm to be able to sell in China. It has a lower — frequently much lower — registered capital requirement than a WOFE: RMB 400,000 for wholesale enterprises and RMB 300,000 for retail facilities in China. Adhering to WTO regulations, which aims to create a more level playing field for non-Chinese entities, the FICE is a boon to foreign operations in China. The trade-off for this lower registered capital requirement, however, is a more restrictive playing field insofar as what your FICE is permitted or proscribed to do. If your business plans fall within the parameters of a FICE….that’s nice!
 
The Registered Representative Office
This is how I’ve been doing business in China since 1990. It is the least expensive (cheap, actually) method of getting a start in China. If you need to be physically present in China but can conduct your business without invoices from China and do not have many employees, then this may be the only method that you should consider.
 
Remember, though, Representative Office owners must have a legitimate business, one that has been in operation for more than one year (but that’s not a problem: Hong Kong incorporators have easy solutions for this!). Rep Offices are permitted to conduct market research for their parent corporation as well as facilitate quality control, sales administration and marketing for the overseas parent corporation. If the Rep Office is reaching beyond these tasks, then there may be some potential problems in the future — but who knows how long it will take for that future to arrive? Looking at the present and the immediate future, you can get started in China for next to nothing. Effectively, there is no registered capital requirement.
 
Assembling and Processing Co