Corporate Income Tax in China is required for all enterprises (except sole proprietorships and partnerships), including all organizations that generate income in the country. The fundamental regulations on China’s corporate income tax (CIT) are the CIT Law and its Implementation Guidelines. Both regulations were most recently updated in 2007 and entered into force on January 1, 2008.
Conditions on Taxpayers
All the domestic enterprises or other organizations in People's Republic of China, which perform independent economic accounting, include the following six categories:
1. State owned enterprises;
2. Collective enterprises;
3. Private enterprises;
4. Joint ventures;
5. Joint-stock enterprises;and
6. Other organizations with income from production and operation and other income.
How to Calculate Corporate Income Tax in China
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.
1. Direct 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
2. Indirect method
In practice, the indirect method below is more frequently adopted in the annual declaration of CIT:
Taxable income = Gross profit as shown in the accounting book ± Adjustments for tax purpose ± Income/profits to make up for the loss incurred in the previous year
Each case may vary from each other. Therefore, for more details about the calculation, you may consult with our consultants.
Preferential Policies for Small and Profit Enterprises
From January 1, 2018 to December 31, 2020, small and low-profit enterprises will be eligible for preferential CIT policies if their taxable income in the previous year amounted to no more than RMB 1 million.
If an enterprise’s taxable income in the previous year was greater than RMB 1 million, or if it is a newly-established enterprise that had no taxable income in the previous year, such enterprises can still qualify for preferential CIT policies, if taxable income for the current year is estimated to be RMB 1 million or less.
Eligible enterprises will only have to pay tax on half their taxable income, at a rate of 20%, as outlined in the Ministry of Finance and the SAT’s Circular on Further Expanding the Scope of Preferential Income Tax Policies for Small and Low-Profit Enterprises (Cai Shui [2018] No. 77).
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143512, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
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