Taxes in China
Taxation in ChinaUpdated on Thursday 18th February 2021
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The tax system in China divides taxation into taxes for corporations and for individuals. There are a number of different taxes applicable in various fields; foreign investors interested in the business environment applicable by the Chinese authorities can also benefit of the provisions of double taxation treaties signed by China, if they are residents of states which have signed such agreements. Some of the most important taxes in China are: income taxes, property taxes, agricultural taxes, customs duties taxes and others.
Companies in China need to comply with the filing requirements and the same rule is applicable to individuals as well. Our lawyers in China provide complete tax management services and information on the taxation system currently applied here.
Corporate taxation in China
A company is considered a Chinese resident company if it is established in China or if its main place of management is located in China. Foreign companies are also subject to Chinese taxation if they operate through a permanent establishment, or if they derive income from China, even if they do not have an establishment here. Resident companies are taxed on their worldwide income and non-resident companies are liable to taxation only on the income produced in China and effectively related to their Chinese establishments (if applicable). A permanent establishment is considered to be any fixed place through which the company operates in China and which is set up in order to gain profits.
The standard company income tax in China is 25%. Small-scale businesses benefit from a lower rate of 20% and companies that have a high-technology status benefit from a 15% rate. The corporate rate can be lowered down to 10% if certain conditions are met. At the same time, the rate imposed at a value of 15% of the profits can also be applied to companies incorporated in specific regions of the country, as a measure to promote investments in those areas.
A 10% withholding tax applies on dividends paid to non-resident companies, unless otherwise specified by a tax treaty. The same rate of 10% withholding tax applies to royalties and interest paid to a non-resident.
It is important to know that the local authorities introduced new regulations from the beginning of May, referring to the Value Added Tax (VAT) applied to financial services and insurance. The new tax is applicable at a rate of 6%. Real estate VAT is imposed at a rate of 11%. The Value Added Tax in China has a standard value of 17% and a lower rate applies to certain products. The tax year is generally the calendar year and penalties apply for late payments, as well as surcharges. Our lawyers in China can give you complete details about VAT registration for companies. Here is an infographic about taxes for companies in China:
Taxation on incomes of individuals in China
The taxable income for individuals in China includes the employment income, the production and business income, income for personal services, income from leasing property, the assignment of property or transfer of property and other types of income. There are seven progressive tax rates, between 3% and 45% that are levied on salaries in China. Overall, individuals are taxed for 11 types of income. Import and export companies must obtain the EORI number, a matter where our lawyers can help.
VAT in China
It is good to note that the standard VAT rate is 17% and it was recently revised. This VAT rate is imposed on varied products, yet there are lower rates imposed for other types of products and services:
- • 13% VAT rate for essential food products, paper products, etc.
- • 9% VAT rate for hotel accommodations, postal services, catering, real estate, and construction, transportation, and logistics.
- • 6% VAT rate for internet & telephone services, financial and insurance services, consulting, etc.
- • 3% VAT rate is the Chinese National Education Tax. It is also imposed on specific construction services and for small-sized enterprises.
- • 2% VAT rate is the Chinese Local Education Tax.
The registration for VAT is mandatory for companies and small entrepreneurs in China and can be done with the help of our advisors in China. The same team can tell you more about the tax rate in China if you would like to register a business in China.
Are compensations taxable in China?
According to the taxation in China, compensations received by employees, such as salary, bonuses, cost-of-living allowances, equity-based compensation, and mobility premiums are subject to taxation. We remind that foreigners working in China are seen as non-residents and are levied on the incomes generated in China. There are also tax exemptions referring to relocation, rental accommodation, education expensed for children, or language training, to give a few examples. You can discuss this with one of our Chinese lawyers if you want to know more about the tax rates in China. It is important to know more about taxation in China and to align with the requirements in this field.
Taxation on investment income in China
Both residents and non-residents are taxed on investment income, no matter the source. Moreover, foreigners with residence of fewer than 6 months are normally liable for taxation on investment income generated in China. If you believe you have incomes from investments in China, and if you would like to know more about China tax, feel free to address your inquiries to our lawyers in China.
Making investments in China
China offers a free market that can be easily accessed by any type of investor. The business opportunities are huge and large companies already enjoy the benefits and advantages offered, in terms of taxation, workforce, logistics and transportation, incentives, and more. The dynamic economy, the experienced workforce, and the great potential of the Chinese emerging market are solid points that are attentively considered by international entrepreneurs. Even though business registration in China is relatively a straightforward process, it is best to seek advice from a professional who knows the legislation and who works closely with the local authorities. Here are a few facts and figures that highlight the economy and business direction in China:
- Nearly USD 1,769 billion was the total FDI stock in China in 2019.
- China was the second-largest FDI recipient in 2019, after the USA.
- The 2020 Doing Business report ranked China 31st out of 190 economies in the world, in terms of ease of doing business, as stated by the World Bank.
- Even the greenfield investment field in China was successful in 2019, registering around USD 62 billion.
The tax rates in China are important to business owners from overseas, interested in making investments. You can discuss this with one of our Chinese lawyers if you want to know more about taxation in China.
FAQ about taxation in China
1. Who needs to pay taxes in China?
Companies and individuals with residence in China are liable for taxation on generated incomes. China tax can be explained by our advisors.
2. What are the most important taxes in China?
The corporate income tax, VAT, consumption tax, individual income tax, and withholding income tax are the main taxes imposed in China. Taxation in China must be fully understood from the start.
3. What is the VAT threshold in China?
If the VAT taxable turnover exceeds EUR 98,000, a company in China must register for VAT.
4. Is there a business tax imposed in China?
Yes, the business tax in China is applicable on the provision of services, with few exceptions, and the sale of real estate properties in this country. The business tax ranges between 3% and 20% rate.
5. What is the corporate tax in China?
The standard corporate income tax imposed on companies with establishments in China is set at a 25% rate. There is a lower corporate tax rate imposed on small-sized companies registered in China. If you would like to know more about China tax, feel free to get in touch with our advisors.
Persons who want to receive more about the taxation on companies and on individuals in China can contact our Chinese attorneys.