Friday, 12 June 2015

Major Tax Categories in China for Foreign Investment Enterprises and Foreigners

Since China opened up in the late 1970s, foreign investment has played an increasingly important role in the country’s economic growth. Hundreds of thousands of foreign investment enterprises and foreign enterprises are in operation in China. A number of taxes are applicable to enterprises with foreign investment, foreign enterprises and foreigners in China in accordance with regulations set by the National People’s Congress, its Standing Committee and the State Council of China.

Chinese tax authorities have been paying more attention to international tax collection and administration. The division of taxation and tax policymaking powers between levels of authorities is still largely determined by the Central government, rather than through legislation. Under the existing taxation regime in China, there are mainly three taxation collection systems, namely state tax bureaus at various levels, local tax bureaus at various levels and Customs.

Generally, state tax bureaus have the power to levy certain taxes (e.g. enterprise income tax and value-added tax), while taxes imposed by local authorities include the individual income tax, business tax and stamp tax. Customs is mainly responsible for collecting customs duty and consumption tax. The following content briefly summarises the major tax categories for foreign investment enterprises and foreigners. For more information, please refer to “China’s Tax System” at
  • Value-added tax
Value-added tax (VAT) is payable by enterprises and individuals who sell merchandise, who import goods or who supply services, such as processing, repair and replacement. Unlike in Western countries, VAT is not imposed on all services in China.
  • Consumption tax
Consumption tax is levied on the production, processing or importation of certain specific consumable goods in China. 
  • Customs duty
Customs duty is levied by the customs authority on imported and exported goods in order to raise state revenue and to protect domestic industries.
  • Business tax
In China, business tax is a kind of turnover tax imposed instead of VAT on businesses other than those related to manufacturing. These businesses include most services such as communications, transportation, finance, entertainment, as well as the transfer of intangibles and immovable property.
  • Enterprise income tax
In general, foreign companies are taxed on their China-source income whether they have any permanent establishment in China or not.

China-source income
foreign-source income
Resident enterprises*
Non-resident enterprises,** if income is effectively connected with their China establishment
Non-resident enterprises, if they do not have any China establishment, or if income is not effectively connected with their China establishment

Notes:* Resident enterprises: incorporated or effectively managed in China
** Non-resident enterprises: incorporated and effectively managed outside China
  •  Individual income tax
Individuals who have resided in China for less than one year should pay individual income tax on their incomes derived from sources within the country. Those who have resided in China for one year or more should pay individual income tax on their income derived from sources both inside and outside China.
  • Land appreciation tax
Land appreciation tax is levied on gains arising from the transfer of the right to use state-owned land and the buildings that are constructed on this type of land.
  • Urban real estate tax
A tax of 1.2 percent is imposed on foreign investment enterprises and foreign national owners of real estate, or at the rate of 12 percent of rental income.
  • Stamp duty

Stamp duty is payable on instruments created in the process of economic activity, on the documents written.
  • Vehicle and vessel tax
Those who own or operate vehicles and vessels should pay a vehicle and vessel tax in China; otherwise, the user should pay the tax on behalf of the owner or the operator of a vehicle.

Foreign investors tend to assume that the tax laws in China are fairly straightforward, that as long as they provide proper documentation they can deal with such laws themselves without expert advice.  Nevertheless, there are various complex rules covering numerous aspects of the business activities of foreign investment enterprises in China, particularly when preferential policies are provided to foreign investment enterprises. Both investors and companies need to find practical ways to keep updated with the latest information on regulations and laws. In a nutshell, it is suggested not to disregard or delay seeking professional advice on Chinese tax laws; otherwise, foreign investors may face serious penalties or losses due to underpayment.

Through our China WFOE (offices in Shanghai, Beijing and Guangzhou), Primasia provides one-stop China set-up and supporting services, including payroll, tax, accounting and licence renewal. If you need further assistance, please contact US


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