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How to Calculate Corporate Income Tax in China

Updated:2018-5-3 15:25:43    Source:www.tannet-group.comViews:151

How to calculate corporate income tax in China is of great importance for investors who are doing business in the country, since all enterprises (except sole proprietorships and partnerships), including all organizations that generate income in China, are subject to corporate income tax (CIT). Business individuals or enterprises can turn to professional agency for assistance, that is to say, choosing outsourced tax filing service. Tannet, equipped with competent consultants, is glad to help you handle all the matters from company incorporation, operation to deregistration.

Corporate Income Tax in China
Tax resident enterprises (TRE) are subject to corporate income tax (CIT) on their worldwide income. A non-TRE that has no establishment or place in China is taxed only on its China-source income. A non-TRE with an establishment or place in China shall pay CIT on income derived by such establishment or place from sources in China as well as income derived from outside China that effectively is connected with such establishment or place. Under the CIT law, the standard tax rate is 25%.

Direct Calculation Method
CIT taxable income is calculated on an accrual basis, meaning that income items are recorded when they are earned and deductions recorded when expenses are incurred. There are two ways of calculating taxable income: the direct method and the indirect method. The formula for calculating taxable income under the direct method is as follows:

CIT taxable income = Gross income – Non-taxable income – Tax exempt income – Deductions – Allowable losses carried from previous tax year

Gross income refers to income in currency and non-currency forms received by the enterprise from various sources, including income from the sales of goods; provision of services; transfer of property; equity investments, such as dividends and profit distribution; as well as interests, rents, and royalties.

Non-taxable income includes fiscal appropriations (e.g., government subsidies to enterprises), governmental administration charges and government funds lawfully collected and brought under relevant laws, as well as other non-taxable income stipulated by the State Council.

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