Corporate taxation in Beijing is a common concerns for business owners. Working in China as an expat can be exciting and rewarding, but it also means that you have to deal with Chinese income tax. The combination of time in China and source of income determines what income is taxable in China. Where the work is performed and who pays for the income also affects the Chinese income tax. Income sourced within or outside China, as well as income paid by a Chinese entity or foreign entity are treated differently under the tax rules. The following are the common taxes that enterprises need to attend to.
Taxable Income
Taxable income is the amount remaining from gross income in a tax year after deducting allowable expenses and losses, nontaxable and tax-exempt items, and any prior year loss carry forwards. All documented costs incurred in connection with operating activities on a reasonable and actual basis are allowable, except those specifically identified as nondeductible.
Tax Rate of Enterprise Income Tax
The standard enterprise income tax rate is 25%. Special rates mainly apply to small-scale enterprises (20%, or 10% if certain requirements are met), enterprises with new high-technology status (15%) and enterprises incorporated in certain regions of China and engaged in encouraged business activities (15%). Special rates are available for certain other encouraged business.
Other Taxes on Corporate
1. Real estate tax
Real estate tax, levied on land and buildings, is paid by the owner of real estate at 1.2% per year on the original cost, less a variable allowance depending on the location, or at 12% per annum on rental income. An urban land usage tax is imposed on the land area occupied at rates ranging from RMB 0.6 to RMB 30 per square meter. Other minor local levies may apply.
2. Value-added tax
VAT returns generally must be filed each calendar month and submitted before the 15th of the following month. Taxpayers importing goods must pay tax within 15 days after the issuance of the tax payment certificate by Customs.
3. Business tax
Business Tax is a nonrecoverable turnover tax (with certain exceptions) imposed on the provision of certain services, the assignment of land/natural resource use rights and the sale of immovable property within China.
4. Stamp duty
Stamp duty at varying rates applies to contracts, agreements and certain legal documents.
Important Tips
A late payment surcharge will be imposed on a daily basis at a rate of 0.05% of the amount of underpaid tax. Penalties may be imposed in addition to the late payment surcharge. An interest-based penalty, being the basic RMB lending rate plus 5%, applies in the case of transfer pricing, thin capitalization, CFC and general anti-avoidance tax adjustments.
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