Companies in China are taxed according to the Enterprise Income Tax Law that applies both to local and foreign-owned enterprises in China. Foreign companies in China
are taxed on their Chinese-source income and there is a withholding tax for dividends, royalties and interests. Companies that want to repatriate dividends from China
need to observe the Chinese rules for foreign exchange control.
Taxation on dividends in China
In China, the withholding tax for dividends is 10%, the same as for interest and royalties. The withholding tax on dividends paid to a non-resident company was introduced in 2008. A few years ago there was no withholding tax on dividends and investors in China should know that dividends paid out of pre-2008 earnings continue to be exempt from withholding tax.
The 10% withholding tax for dividends can be reduced under a tax treaty
signed between China and the country of residence of the company paying the dividends. The 10% withholding tax was reduced from a 20% statutory rate.
Repatriation of dividends from China
The most common manner in which foreign companies based in China can repatriate profits is to pay dividends directly to the parent company abroad. This repatriation of profits from Chinese subsidiaries is however subject to taxation, the most notable being the withholding tax of 10% on dividends. Companies in China can only repatriate profit that has undergone an annual audit and a foreign invested enterprise in China can only distribute dividends out of its accumulated profits.
Our attorneys in China can help you calculate the taxes applicable to companies that want to distribute dividends to a foreign company. If a double tax avoidance agreement is signed between China and the country of residence of the foreign parent company to which the dividends payments are made, then the parent company can qualify as a beneficial owner and can benefit from a preferential withholding tax on dividends.
Our Chinese lawyers
can help you with more information about taxation for companies in China
such as the corporate tax. Other taxes on companies in China include:
- the real property tax,
- social security,
- the deed tax.