Income tax on enterprises with foreign investment and foreign enterprises
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.
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.
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.
3500 Yuan is the fixed deductible
amount for Chinese while 4800 Yuan is the fixed deductible amount for foreigners working in China.
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%.
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.
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.
From 1 May 2016, business tax was cancelled in PRC.
All enterprises, units and individuals engaged in production or importation of the taxable consumer goods within the territory of PRC are consumption taxpayers.
Eleven taxable items are subject to Consumption Tax either at flat rate, fixedamount of tax per unit, or compound rate.
10% on other precious jade and stones;
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.
|Exported goods (except for the goods either in aid of foreign countries 0% or prohibited by the Central Government for exportation)
|Domestic Transportation service with own vehicles is subjected to input VAT deduction
|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 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.
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.
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.