Seconded UK Employees as a Permanent Establishment in China

Unde rthe China-UK double tax agreement, UK firms deriving profits in China are protected from Chinese
tax liability on the profits unless the profits are derived through a permanent establishment. Unlike the
original 1984 treaty between China and the UK, the current treaty, effective from 1 January 2014, deems
a UK company to have a permanent establishment in China in some circumstances where its employees
provide services in China, including services provided to its subsidiaries, for more than 183 days in a 12
month period. Where this happens, the profits of the deemed permanent establishment will be subject to
Chinese company income tax. The profits will normally be calculated as a percentage of the service fee
paid to the UK employer for the services provided by its employees.This article explores the circumstances
in which a UK employer can find itself with a deemed permanent establishment in China when seconding
its employees to work in its Chinese subsidiaries and, when this happens, how its tax liability may be
calculated.