Accountancy in China

>> Taxation in China

Income tax on enterprises with foreign investment and foreign enterprises

Corporation tax

China uses tax preferences to bring in its much needed companies. Manufacturing enterprises with foreign investment, export-oriented enterprises with foreign investment or advanced technology enterprises, enjoy income tax holidays, VAT refunds for exports, and free duties for importing equipment and machinery needed in production of FIEs. Foreign investors need to ensure that they qualify for these preferences.

Chinese tax preferences are designed to foster growth in certain regions. Foreign enterprises located in Special Economic Zones, Economic and Technological

Development Zones, Coastal Economic

Open Zones, State New and High-tech Industry Development Zones and/or Bonded Zones, and in the middle and west of China shall enjoy certain tax reductions and exemptions. Therefore, carefully selecting a site is imperative.

Small companies rate

A small industrial enterprise is one with an annual taxable income which does not exceed RMB 300,000.00; the number of employees does not exceed 100; and the total assets do not exceed RMB 30 million. Enterprise income tax for a small-scale enterprise that meet these prescribed conditions shall be levied at a reduced  rate of 20%.

If the above small industrial enterprise’s annual taxable income is from RMB 200,000.00 to RMB 300,000.00, income tax shall be levied at a reduced rate of 10% from 1 Oct 2015 to 31 Dec 2017.

Other small enterprises (i.e. not industrial) are those with an annual taxable income which does not exceed RMB 300,000.00; the number of employees does not exceed 80; and the total assets do not exceed RMB 10 million. Enterprise income tax for a small-scale enterprise that meets the prescribed conditions shall be levied at a reduced rate of 20%.

If the above small non-industrial enterprise’s annual taxable income is from RMB 200,000.00 to RMB 300,000.00, income tax shall be levied at a reduced rate of 10% from 1 Oct 2015 to 31 Dec 2017.

Dividend payments

If a foreign shareholder reinvests dividends in China, it can receive a tax refund from the Chinese tax authorities equal to 40% of the enterprise income tax paid by the dividends distributing company. Because of the dividend-reinvestment incentive, it will be tax beneficial to reinvest dividends in China.

Branch profits tax

Same as Corporation Tax.

Personal income tax (pay as you earn)

  1. Income from wages and salaries shall be taxed at progressive rates ranging from 3% to 45%. A monthly deduction of 3500 Yuan shall be allowed for expenses and anything in excess of 3500 Yuan shall be taxable income.

3500 Yuan is the fixed deductible

amount for Chinese while 4800 Yuan is the fixed deductible amount for foreigners working in China.

  1. Income from the production and

business of individual industrialists and merchants (the amount remaining from its gross income in a tax year after the costs, expenses and losses have been deducted) and income from contracted or leased operation of enterprises or institutions (the amount remaining from its gross income in a tax year after deducting necessary expenses – the allowable expenses are 2000 Yuan per month at the present) shall be taxed at progressive rates ranging from 5% to 35%.

  1. Income from an author’s remuneration shall be taxed at a flat rate of 20%. The amount of tax payable however shall be reduced by 30%. (14%).
  2. Income from remuneration for

personal service shall be taxed at a flat rate of 20%. Where a specific payment of income from remuneration for personal service is excessively high, additional tax can be levied at a rate to be specifically determined by the State Council.

  1. Income from royalties, interest, dividends, bonuses, lease of property and transfer of property, as well as contingent income and other income shall be taxed at a flat rate of 20%.

For income from remuneration for personal service, author’s remuneration, royalties and lease of property, a deduction of 800 Yuan shall be allowed for expenses, if the amount received in a single payment is less than 4000 Yuan. For single payments of 4000 Yuan or more, a deduction of 20% shall be allowed for expenses. The remaining amount after the deduction shall be the taxable income.

For income from transfer of property, the taxable income shall be the amount remaining from the gross transfer income after deducting the original value of the property and reasonable expenses.

For interest, dividends, bonuses, contingent income and other income, the taxable income may be the full amount received in each payment. The part of individual income donated to educational and other public welfare undertakings shall be deducted from the taxable income in accordance with the relevant regulations formulated by the State Council.

For the tax payer who has no domicile in China but derives wages and salaries from sources within China, or has domicile in China but derive wages and salaries from sources outside China, the additional deduction for expenses shall be allowed on the basis of the average income level, living standard and the changes of exchange rates. The scope of application and amount of the additional deduction for expenses shall be regulated by the State Council.

For individual income tax, the income earner shall be the taxpayer and the paying unit or individual shall be the withholding agent. Taxpayers that receive wages or salaries from two or more payers, or taxpayers without withholding agent, shall file tax returns and pay tax themselves.

Business tax

From 1 May 2016, business tax was cancelled in PRC.

Consumption tax

Taxpayers

All enterprises, units and individuals engaged in production or importation of the taxable consumer goods within the territory of PRC are consumption taxpayers.

Tax items and rates

Eleven taxable items are subject to Consumption Tax either at flat rate, fixedamount of tax per unit, or compound rate.

  • Compound rate for tobacco;
  1. Compound rate for alcoholic drinks

and alcohol;

  1. 30% on cosmetics;
  2. 8% on skin-care and hair-care products;
  3. 5% on gold and silver jewellery and diamond and diamond decoration,

10% on other precious jade and stones;

  1. 15% on firecrackers and fireworks;
  2. 2 Yuan per litre on non-lead gasoline, 0.28 Yuan per litre on lead gasoline;
  3. 1 Yuan per litre on diesel oil;
  4. 10% on motor vehicle tyres;
  5. 10% on motorcycles;
  6. 3%, 5%, and 8% for motor cars with different sizes and cylinder capacities.

 

Value added tax

Taxpayers

All kinds of enterprises, institutions, individual business operators and other individuals who are engaged in the sales of goods, importation of goods, provision of processing, repairs and replacement services within China are VAT payers.

Taxable items and tax rates

Taxable Items Rates
Exported goods (except for the goods either in aid of foreign countries 0% or prohibited by the Central Government for exportation)

  1. Since 1st January 2012, the original 5% Business Tax (Sales Tax) has been replaced by 6% Value Added Tax (VAT) in Transportation and some Modern Service Industry in Shanghai.
  2. R&D service provided
  3. Transfer of intangible assets, including transfer of land-use rights, patent rights, non-patent technologies, trademarks, copyrights and goodwill
6%
Domestic Transportation service with own vehicles is subjected to input VAT deduction

  • Agricultural products, forestry products, animal husbandry products, and aquatic products;
  • Edible vegetable oil and food grains;
  • Tap water, heating, air conditioning, hot water, coal gas, liquefied petroleum gas, natural gas, methane gas, coal/charcoal products for household use;
  • Books, newspapers magazines (excluding newspapers and magazines    13% issued by post and tele-communication departments)
  • Feeds, chemical fertilisers, agricultural chemicals, agricultural machinery and covering plastic film for farming
  • Dressing metal mineral products, dressing non-metal mineral products, coal.
11%
Crude oil mine salt and goods other than those mentioned above, services  of processing, repairs and replacement services. 17%
From 1 May 2016, previous business tax payers under construction, real estate, financial service, and social services industries will change from paying business tax to paying value added tax. 3%, 6%, 11%, 17%  respectively

Land tax

Land tax is a collection of various taxes levied on land according to the land area, land grade, price, returns of land, and land appreciation. In China, the primary land taxes are land appreciation tax and real estate tax.

Tax treaties

Up to now, a tax agreement has been signed between China and other 89 countries. Besides, China has concluded with Hong Kong and Macau an agreement of prevention of double taxation and avoidance of tax fraud. Please refer to appendix 1.

Transfer pricing rules

Enterprises involved in related-party transactions and tax authorities evaluating related-party transactions shall adopt reasonable Transfer Pricing methods  on an arm’s-length basis.


Latest version updated 12th March 2018

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Population

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Renminbi

Currency

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