The corporate tax applies both to Chinese and foreign companies that have operational units in China. The standard corporate income tax rate in China is 25% and the same applies to branches in China. In addition to this tax, Chinese companies are also required to pay other taxes. In some cases, special rates of corporate income tax apply. Our lawyers in China can give you detailed information about the Enterprise Income Tax Law that applies to companies and governs taxation in China.
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Taxation for companies in China
The standard China corporate tax rate is set at 25% rate and it applies to resident Chinese companies and those that produce incomes in China. Resident companies are taxed on their worldwide income, while non-resident companies are taxed only on their Chinese-source income. A company is considered a Chinese resident company if it is incorporated in China or if it has its main place of management located in this country. A foreign company in China is also subject to tax if it has an establishment in the country, such as a branch or if it derives income from this country.
Lower China corporate tax rates apply to small businesses, companies with new technology-status and companies incorporated in certain regions in China where development is encouraged. These smaller rates are 20%, 15% or 10%, if certain requirements are met.
In general, the tax year is the same as the calendar year in China. Consolidated tax returns are usually not allowed in China and each company must file a separate return. Our Chinese attorneys can give you more details about the requirements for submitting the annual tax returns for companies.
Taxes in China
Apart from Chinacorporate tax rate, the country imposes other taxes and contributions for companies. Some of them are the following:
- • the capital gains tax of 25%,
- • withholding taxes on dividends, interest and royalties,
- • social security contributions,
- • the real estate tax,
- • the deed tax,
- • the land appreciation tax,
- • the business tax,
- • the consumption tax,
- • the Value Added Tax.
In order to avoid double taxation for individuals and companies that are running businesses both in China and in another country, China has signed a large number of tax avoidance treaties. Our attorneys in China can give you a complete list of these treaties and tell you more about how they can influence your business.
The CIT rate of 5%
The taxation regime in China is quite appealing for small businesses established in this country. The tax authorities implemented a new tax rule available for the period January 2019 – December 2021. In this sense, small companies registered in China will pay a corporate income tax (CIT) of only 5% if the annual taxable income does not exceed CNY 1 million. Moreover, if the annual income exceeds this sum, CIT applies only for CNY 1 million, while the excess of no more than CNY 3 million will be levied with a corporate income tax of 10%.
There are also other CIT benefits for companies established in China. For instance, corporations who act for the prevention of pollution in China will not pay the standard corporate income tax of 25%, but a reduced one of 15%. The same reduced CIT rate applies to companies established in Hainan Free Trade Port until 2024. Feel free to talk to our Chinese attorneys and see how they can help you with the tax formalities imposed in China. More about China corporate tax rate can be discussed with us.
A reduced CIT for R&D activities
China is known for the support offered to the research and development sector and related industries. Companies dealing with civil aviation, biomedicine, artificial intelligence, and integrated circuits enjoy a series of tax benefits like a reduced corporate income tax of 15% rate. This tax rule was implemented in 2020 and applies for 5 years from the date the R&D company is incorporated. If you would like to know more about this important tax advantage, you can talk to our specialists in China.
The DTTs signed by China
China signed a large number of double taxation treaties (DTTs) with countries worldwide with the purpose of avoiding the fiscal evasion and taxation on incomes twice. The business collaborations with countries like Albania, Australia, Belarus, Brazil, Bosnia and Herzegovina, Denmark, Estonia, Egypt, Cyprus, Czech Republic, Jamaica, Mexico, Luxembourg, Chile, Latvia, Finland, Greece, India, Hungary, Norway, Romania, Portugal, Spain, Pakistan, Lithuania, the Netherlands, Jamaica, Slovakia, Saudi Arabia, Russia, Iran, Nepal, Qatar, Poland, Italy, Thailand, Syria, and Switzerland are sustained by the double taxation treaties signed with China. Each agreement comprises information about the ways the company profits are protected. Here is information about double taxation treaties signed by China:
- • The corporate income tax, withholding tax, individual income tax, and dividends are protected by the DTTs signed by China.
- • The withholding tax imposed in dividends, interests, and royalties ranges from 5% to 15%.
- • The trading companies are protected by the DTTs signed by China.
- • The permanent establishment mentioned by a DTT refers to the business place of a company. This is where the activities are developed.
- • According to the double taxation treaties signed by China, the profits are levied only in the country where they are registered.
You can discuss further details with our Chinese lawyers with experience in the taxation field, and especially about China corporate tax rate. Investors can rely on our legal support for starting a business in China.
Making investments in China
China is an extremely attractive destination in terms of foreign investment. The free and full of opportunities market does nothing but attract a large number of foreign investors every year. The low costs of the company’s operations, the experienced labor force, and a multitude of business sectors where various economic activities can be implemented represent only a part of the benefits that China offers to foreigners. The possibility to register a company without bureaucratic complexities is another advantage put on the list of foreign or domestic entrepreneurs.
China has opened a large number of free trade zones where it hosts a large number of foreign companies that benefit from an advantageous profit taxation system, excellent transport, and logistics conditions, etc. Here are some statistics and figures that underline China’s economic and business direction:
- The total FDI stock for China in 2019 was approximately USD 1,800.
- The 2020 Doing Business report ranked China 31st out of 190 worldwide countries, as stated by the World Bank.
- The manufacturing sector continues to absorb most of the FDIs. Nearly 31% of the investments made in this sector have been directed in this field in 2018.
- Hong Kong, Singapore, South Korea Virgin Islands, Germany, USA, and Japan are the main investors and business partners of China.
For more information about taxation for companies and individuals in China, and particularly about China corporate tax rates, please contact our Chinese law firm.