Taxation of Foreign Companies in China

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.

 

 

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 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 Chinese lawyers can tell you more about taxation for branches and subsidiaries which are great investment options for foreign businesses wishing to expand into 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.

 

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