Taxation of Foreign Companies in China

Updated on Monday 09th January 2023

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China welcomes foreign investments and, although special permits may be needed in order to invest in some areas, other businesses are encouraged. Foreign investors in China usually choose to open a wholly foreign-owned enterprise (WFOE). The taxation of foreign companies is straightforward and, with the right help, foreign investors can even obtain tax incentives for projects initiated in China. Our Chinese law firm can help you open a Chinese company and comply with the regulations for taxation.

Taxation for non-resident companies in China

The standard corporate tax rate in China is 25%, but special rates can apply for small companies. Non-resident companies in China are only subject to taxation on the income produced in China and the income connected with an establishment in China. The establishment is not specifically defined and it may also include independent agents in China. A foreign company that has an establishment in China will be taxed on the entire income produced in China by the establishment and connected to it.

Our attorneys in China can tell you more about the taxation for branches and subsidiaries which are great investment options for foreign businesses wishing to expand into China.

What is the VAT in China?

Since May 2018, the value added tax in China is set at 16% and it is applicable to varied products and services meant for sale purposes in the country. The same VAT rate is available for imported goods in China. The following VAT rates apply to different products in services:

• a VAT rate of 13% is applicable to foodstuff on the market;
• postal and catering services are subject to a 10% VAT charge;
• a 6% VAT rate is available for insurance and financial services in China and for city maintenance and construction;
• the Chinese National Education and the construction services are levied with a VAT rate of 3%.

We remind that our Chinese lawyers specialized in taxation matters in China are at the disposal of foreign entrepreneurs who would like to set up a company and need information about the tax structure in the country. They can also advise on immigration matters. They can guide you in detail about all available visa types which Chinese government is offering. With their practical assistance, you will able to immigrate to China on a visa which suits your need. For instance, if you want to move here on a student visa, you should that they are of two types. Visas X1 and X2 are divisions of this type of visa. Foreign students who travel to China to study for a duration longer than six months are granted the X1 visa. Similar intent lies behind the X2 visa, but for stays shorter than six months.

Taxes in China

The Enterprise Income Tax Law (EIT) applies both to resident and non-resident companies in China, with special rules in certain cases. China also has controlled foreign company rules, anti-avoidance rules, transfer pricing, and thin capitalization rules. The withholding tax on dividends is 10% and the same percentage is applied for interest and royalties.

For the purpose of taxation in China, a company is considered a resident Chinese company, if it is incorporated in China or if it has its management office located in China. The taxable income includes profits, capital gains, and passive income. China has signed a series of tax treaties with numerous countries. Approximately 100 such treaties are signed for the purpose of avoiding double taxation for companies that have operational units both in China and in another country.

Special tax regimes for companies in China

The enterprise income tax can be exempt or reduced for the type of incomes registered in domains like forestry, fishery, and agriculture. The same rule is available for the revenues generated by companies with activities in the environmental sector, energy, public infrastructure or for expenditures registered in the research and development sector in China. Startup investment enterprises engaged in important investments in China which are necessary to be sustained and stimulated by the state can be subject to varied deductions in a certain proportion of the investment amount from the taxable total revenue. Except for certain specifications stated by the Chinese tax laws or any other relevant financial administrations, a resident company is entitled to pay the taxes at the place or city where it is incorporated. One must bear in mind that if the registered business address is not in China, the company will have to pay the taxes in the city or location where the management is found. Knowing the tax regime for business in China will help foreign entrepreneurs decide on the proper business form, in accordance with their investment plans and needs.

For detailed information about the tax rules that apply for your business or information about company incorporation in China, please contact our Chinese lawyers.