China corporate taxes is a common concerns for foreign expats who work or set up business there. China is one of the biggest markets in the world and is attracting more and more global investors. In order to run the business in a most cost efficient way, it is necessary for foreign investors to understand all the potential relevant tax costs that would be incurred when doing business in China before making an investment decision.
Different type of investment activities will trigger different types of taxes. The major taxes applicable to foreigners, foreign invested enterprises (FIEs) and foreign enterprises doing business in China are as follows:
I. Tax on income
(1) Corporate income tax (CIT)
All enterprises (except sole proprietorship and partnerships), including all organizations that generate income in China, are subject to CIT. The standard tax rate is 25%, but the tax rate could be reduced to 15% for qualified enterprises which are engaged in industries encouraged by the China government.
(2) Withholding income tax (WIT)
In China, withholding tax is applied to China-sourced income derived by non-resident enterprises, including dividends, bonuses and other equity investment proceeds; interests, rentals and royalties and income from the transfer of property; and any other income subject to corporate income tax obtained by non-resident enterprises. Tax rate for non-tax resident enterprises in China is 20 percent (currently reduced to 10 percent).
(3) Individual income tax (IIT)
According to China’s Individual Income Tax (IIT) Law, all individuals working and deriving income from within the territory of China are subject to IIT. The calculation for IIT liability is dependent on the source of income, how long one has worked in China, and whether or not income is sourced within or outside of China.
II. Tax on transactions (turnover tax)
(1) Value-added tax
This applies to the sale of goods, except real estate properties, and the provision of labour services in relation to the processing of goods and repair and replacement services within China. The standard tax rate is 17% with certain necessities taxed at 13%.
(2) Consumption tax
This applies to 14 categories of consumable goods, including tobacco, alcoholic drinks, cosmetics, jewellery, fireworks, gasoline, diesel oil, tires, motorcycles, automobiles, golf equipment, yacht, luxury watch, disposable chopsticks and wooden floorboard. The tax is computed based on sales price and/or sales volume.
(3) Business tax
This applies to the provision of services (excluding processing services and repair and replacement services), the transfer of intangible properties and the sale of real estate properties in China. Tax rates range from 3% to 20%.
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