Corporate Taxes

Tax Base For Resident and Foreign Companies

Resident companies are taxed on their world incomes and the nonresident companies on the Chinese incomes.

Tax Rate

Tax Rate For Foreign Companies

Generally, foreign companies may only engage in indirect business activities through a representative office (RO) in China. ROs are similarly taxed as Chinese companies but are not allowed to sign contracts with Chinese customers or engage in direct business operations.

Capital Gains Taxation

There is no separate capital gains tax; capital gains (and losses) of companies generally are combined with other operating income and taxed at the corporate income rate.

 

The sale of real estate, net development costs, is subject to the Land Appreciation tax at 30 to 60% (depending on the percentage of gain realised).

Main Allowable Deductions and Tax Credits

Generally, all documented expenses, costs and losses in generating taxable income are deductible up to a limit e.g. entertainment (60% deductible up to 0.5% income), advertising (up to 15% income) and donations (up to 12% income). Non-deductible items include dividends, management fees, Enterprise Income Tax (EIT) paid and late tax payment surcharge fees.

 

A deduction is allowed for amortisation of intangible assets, such as, but not limited to, patents, trademarks, copyrights, and land use rights. Generally, intangible assets have to be amortised over a period of not less than ten years. Organisational and start-up expenses are tax deductible fully in the first year of operation. Interest on loans generally is tax-deductible. Charitable donations are tax-deductible at up to 12% of the annual accounting profit. Non-charitable donations, as well as sponsorship expenditures that are non-advertising and non-charitable in nature, are not deductible.

For R&D expenses incurred for new technology, new products, or new craftsmanship, an extra 50% of the actual expenses incurred are also tax-deductible as an incentive (from 1 January 2017 to 31 December 2019, the extra 50% deduction is increased to 75% for qualified small and medium-sized technology enterprises).

Preferential tax treatment in the form of incentives are further granted to new high-technology enterprises (HNTE), companies in special economic zones (SEZ) and pilot free trade zones (FTZ), while exemptions may apply to agriculture, forestry, fishery, software, infrastructure and other specified environment and technology developments.

Other Corporate Taxes

VAT applies to the sale of goods, provision of processing, repair or replacement services within China and the import of goods into China. Rates vary depending on the taxpayers' sales revenue, type of goods and type of sector.

 

Business tax (3 - 20%) is levied on the sale of property and natural resources, as well as specific services provided in China, including: construction, financial and entertainment.

A real estate tax, which is based on the value of the property or rental received, is assessed annually on land and buildings used for business purpose or leased. The tax rate is 1.2% of the original value of buildings. A tax reduction of 10% to 30% is commonly offered by local governments. Alternatively, tax may be assessed at 12% of the rental value.

A land appreciation tax is levied on the gain from the disposal of properties at progressive rates from 30% to 60%. Land appreciation tax is deductible for CIT purposes.

A deed tax, generally at rates from 3% to 5%, may be levied on the purchase, sale, gift, or exchange of ownership of land use rights or real properties. The transferee/assignee is the taxpayer.

A consumption tax is imposed on specified categories of luxury and environmental unfriendly goods, including cigarettes, alcoholic beverages, high-end cosmetics, jewellery, gasoline, automobiles, battery and coating, etc. The tax liability is computed based on the sales amount and/or the sales volume, depending on the goods concerned.

For taxpayers that are subject to VAT, business tax or consumption tax, a national education surchage tax of 3% and a city maintenance and construction surcharge tax applies. 7% is levied on taxpayers in cities, 5% in counties and 1% in other areas.

Stamp duty (0.005% - 0.1%) is levied on specific legal documents, such as certificates of transfer of property rights and business account permits. Share transactions on a domestic exchange are also subject to a 0.1% tax.

Local Chinese authorities levy a resources tax on the exploitation of mineral products or the production of salt on territory within their jurisdiction. This tax is applied to the selling price for energy resources (e.g. natural gas, coal, crude oil) and to the volume of products sold or used for other taxable resources.

Local authorities may also charge a discretionary license tax for vehicles.

Other Domestic Resources

Doing Business: China, to obtain a summary of taxes and mandatory contributions

source:https://en.portal.santandertrade.com/establish-overseas/china/tax-system