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 http://www.chinatax.gov.cn/2013/n2925/n2959/c307248/content.html.
- 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.
Taxable
China-source
income
|
Taxable
foreign-source
income
|
|
Resident
enterprises*
|
V
|
V
|
Non-resident
enterprises,** if income is effectively connected with their China establishment
|
V
|
V
|
Non-resident
enterprises, if they do not have any China establishment, or if income is not
effectively connected with their China establishment
|
V
|
×
|
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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Please contact:
John Barclay -Email
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