Effective Corporate Tax Avoidance Formulas

Author: Book Writing Group
Publisher:
Publish Date: 2006-07-01
Features: In the current corporate income tax systems in China and foreign-invested enterprises, there are provisions for periodic tax reduction and exemption policies. For such periodic tax incentives, tax planning can be achieved by appropriately liquidating the enterprise and establishing a new one. For example, for enterprises that primarily use waste materials such as "three wastes" as raw materials for production, when the 5-year tax reduction or exemption period ends, the enterprise can be dissolved at the right time, and the existing business can be terminated through liquidation to establish a new enterprise to continue enjoying tax incentives. Since the machinery, equipment, employees, and even factory buildings of the enterprise can be transferred to the newly established enterprise through liquidation, the continuity of business operations for the original enterprise owner will not be affected.
At the same time, certain tax incentives stipulate a minimum operating period for enterprises. For instance, one of the conditions for foreign-invested enterprises engaged in production to enjoy the "two free and three half-reduced" tax exemption policy is that the enterprise must have an operating period of more than 10 years. Foreign-invested enterprises investing in infrastructure projects such as airports, ports, railways, and power stations in Shanghai's Pudong New Area and Hainan Special Economic Zone to enjoy the "five free and five half-reduced" tax exemption policy require an operating period of more than 15 years; otherwise, they must repay the reduced or exempted taxes. How can such operating period requirements be planned? Suppose Company A has completed its tax exemption period. At this time, the business scale of Company A can be reduced to shrink the tax base and reduce corporate income tax payments. When the operating period of Company A reaches the lower limit of the sales tax exemption period, it can be timely dissolved through liquidation.
Additionally, to ensure the continuous operation of the enterprise, while reducing the business scale of Company A, a new enterprise B with a business scale and structure similar to that of Company A can be registered to take over the production and operations of Company A. After the tax exemption period of Company B also expires, the operating period of Company A enjoying tax incentives should also be met. At this time, the business scale of Company B can be reduced, the tax base can be cut, and Company A can be dissolved while registering a new Company C to take over the operations of Company B, thereby achieving the continuity of business operations.
Of course, when adopting this tax planning strategy of alternating between two enterprises, it must comply with relevant laws and regulations. P122-123