China Consulting Consortium International Business Advisers, International Accountants and Certified Auditors Online Company Incorporation
Taxation
China Tax Guide

The PRC Tax Memo summarizes the PRC tax systems and tax rates. The content is based on information current as of 1 January 2015, unless otherwise indicated in the memo. This memo contains information in summary form and is therefore intended for general guidance only.


PRC TAX MEMO


TAXATION IN THE PRC

Under current PRC tax system, there are over 20 types of taxes, which according to their nature and function, are classified into 7 categories: turnover tax, income tax, resource tax, property and behaviour taxes, agriculture tax, custom duty and tax on prescribed items. The tax year in the PRC runs from 1 January to 31 December. The following are the main types of taxation for Foreign Investment Enterprises (FIE), Foreign Enterprises (FE) and Foreign Individuals:


Turnover taxes :
  • Value added tax (VAT) ;
  • Business tax; and
  • Consumption tax


Income taxes :
  • Corporate income tax (CIT) and
  • Individual income tax (IIT)
Other taxes :
  • Stamp duty
  • Deed tax
  • Real estate tax
  • Land value appreciate tax
  • Vehicle purchase tax
  • Vehicle and vessel use license tax
  • Customs duty

Foreign Investment Enterprises are exempted from custom duty and VAT on imported goods and equipment under certain circumstances.

PRC tax residents (corporates or individuals) are taxed on their worldwide income whilst non-PRC residents are taxed on income derived from China source only. Tax credit is allowed for income taxes paid to other countries on certain incomes.


Tax files for Individual Income for foreign invested enterprises is prepared on a monthly basis, while profit tax is prepared quarterly. Tax is levied and paid within several days after the filing.

There is a withholding tax on the following payment made to the non-resident enterprises and individuals in which they are generated in China:

  • Business income
  • Dividends
  • Interests
  • Royalty fees and
  • Investment income .



DOUBLE TAXATION RELIEF

PRC has signed the following international double tax agreements:


Agreements on taxation of international shipping profits with:

  • Chile
  • North Korea


Agreements on taxation of international airline profits with:

  • Afghanistan
  • Peru
  • Zimbabwe
  • Madagascar
  • Zaire


Agreements on taxation of international airline and shipping profits with:

  • Lebanon


Comprehensive double tax treaty with:

  • Albania
  • Indonesia
  • Philippines
  • Algeria
  • Iran
  • Poland
  • Armenia
  • Ireland
  • Portugal
  • Austria
  • Israel
  • Romania
  • Australia
  • Italy
  • Russia
  • Azerbaijan
  • Japan
  • Saudi Arabia
  • Bahrain
  • Jamaica
  • Seychelles


  • Bangladesh
  • Katar
  • Singapore
  • Barbados
  • Kazakhstan
  • Slovenia
  • Belarus
  • Korea
  • South Africa
  • Belgium
  • Kuwait
  • Spain
  • Brazil
  • Kyrgyzstan
  • Srilanka
  • Brunei
  • Laos
  • Sudan
  • Bulgaria
  • Latvia
  • Switzerland
  • Canada
  • Lithuania
  • Sweden
  • Croatia
  • Luxembourg
  • Syria
  • Cuba
  • Macau
  • Tajikistan
  • Cyprus
  • Macedonia
  • Thailand
  • Czech
  • Malaysia
  • The United States
  • Denmark
  • Mexico
  • Trinidad and Tobago
  • Ecuador
  • Malta
  • Tunis
  • Egypt
  • Morocco
  • Turkey
  • Estonia
  • Mauritius
  • Turkmenistan
  • Ethiopia
  • Moldova
  • Ukraine
  • Finland
  • Mongolia
  • United Arab Emirates
  • France
  • Nepal
  • United Kingdom
  • Georgia
  • Netherlands
  • Uzbekistan
  • Germany
  • New Zealand
  • Venezuela
  • Greece
  • Nigeria
  • Vietnam
  • Hong Kong
  • Norway
  • Yugoslavia
  • Hungary
  • Oman
  • Zambia
  • Iceland
  • Pakistan
  • India


  • Papua New Guinea


CORPORATE INCOME TAX


All enterprises, including foreign investment enterprises, foreign enterprises and Chinese domestic enterprises, are subject to Corporate Income Tax (“CIT”) at 25% on their PRC-sourced income or worldwide income (including capital profits and dividend received) depending on whether they are non-PRC resident or PRC resident.

1. PRC Resident Enterprises

  • any company which is incorporated in China under PRC laws or;
  • any foreign company which is incorporated under foreign laws with effective management in China.

They are subject to CIT on their worldwide income.

2. Non-PRC Resident Enterprises

  • any foreign company which is incorporated under foreign laws without effective management in China.

They are subject to CIT on their China-sourced income and non-China sourced income that has an actual connection to the Chinese establishment and site. For example, income generated by the foreign company’s representative office or its branches in China.

* The CIT rates for the State-encouraged High and New Technology enterprises and small-scale enterprises are reduced to 15% and 20% respectively.


Basis of assessment

PRC adopts the calendar year as its official fiscal year. All Chinese domestic enterprises have to adopt its financial accounting year end on 31 December. However, foreign enterprise may apply to the tax authorities to adopt its own fiscal year as the tax year.


Corporate income tax deductions

Taxable income is defined as the amount remaining from its gross income after deducting allowance expenses and losses. There are maximum amounts allowable and for certain categories of expenses, such as employee’s welfare expenses, employee’s education expenses and labour union fees are 14%, 2.5% and 2% respectively of wages and salaries paid in a tax year.

In addition, depreciation allowance in respect of the fixed assets such as furniture and fixtures, and plant and machinery is allowed. Straight-line method shall be applied and subject to minimum depreciation periods. There are regulations providing the minimum useful lives for different categories of assets.

Asset

Minimum number of years

Premises, buildings and structures

20

Airplanes, trains, ships, machinery, mechanical apparatuses and other equipment used in manufacturing

10

Apparatuses, tools, furnishing used in connection with manufacturing and business operations

5

Transportation vehicles other than airplanes, trains and ships

4

Electronic equipment

3


Losses

Tax losses may be carried forward indefinitely to be offset against future profits of the company of the next five years.

No group tax loss relief and tax loss in carry-back arrangements.

Payments to non-residents enterprises

withholding tax rate*

  • Capital gains

10%

  • Dividends

10%

  • Royalties

10%

  • Interest

10%

* Tax on the gross income sourced in China. The tax rates may be reduced or exempted under double-tax treaties.


INDIVIDUAL INCOME TAX

An individual who, at any time during the year of assessment (i.e. calendar year ended 31 December), has provided services on his or her employment and/or business in China is subject to Individual Income Tax (“IIT”). A PRC tax resident would be subject to Individual Income Tax (“IIT”) on his/her worldwide income whilst a non-PRC tax resident would be subject to IIT on his/her PRC-sourced income (i.e. salary, income derived by an individual who acts as an independent contractor and etc.)


I. Employment income

For non-PRC tax residents, the taxable income depends on their length of residence and source of income. In general, if a foreign employer employs an individual to provide services in China and he or she resides in China for:


Length of residenceTaxable income應納稅所得額
i) Less than 90/183 days* during a calendar year
    • income received from the foreign employer is exempted from IIT


ii) More than 90/183 days* but less than one year
    • all Chinese sourced income during the period of residence is subject to IIT.


iii) More than one year but less than 5 years
    • all Chinese sourced income plus any income remitted into China are subject to IIT.


iv) More than 5 year
    • starting from the 6th year of residence, the worldwide income of the individual will be subject to IIT


* The 183-day foreign employment exemption rule applies if the individual is a tax resident of a country which has entered into a double tax treaty agreement with the Chinese government. However, this rule does not apply if it is the establishment in China that pays the employee’s remuneration or if the employee in question holds a senior management position (e.g. director, chief executive director, general manager, chief representative etc.) in China. These individuals will be liable to IIT regardless of the number of days they have resided in China during a calendar year.



Benefits-in-kind

Benefits-in-kind as below are tax free with valid supporting receipts (“fapiao”):

  • Housing accommodation
  • Meal and laundry expenses
  • Language training expenses
  • Children education expenses
  • Relocation expenses
  • Home leave (twice per year, for employee only)


Any cash allowance paid directly to cover expected work-related expenditures (such as an entertainment or travel allowance) will be fully taxable to an employee.


Individual income tax rates

IIT is computed on a monthly basis by applying the following progressive tax rates to employment income after deduction of fixed monthly deduction (i.e. RMB 3,500 for PRC tax resident or RMB 4,800 for non-PRC tax resident).


Progressive tax rate

Tax Rate

Up to RMB1,500

3%

RMB1,501 – RMB4,500

10%

RMB4,501 – RMB9,000

20%

RMB9,001 – RMB35,000

25%

RMB35,001 – RMB55,000

RMB55,001 – RMB80,000

RMB80,001 or above

30%

35%

45%

* For annual bonus received, it can be treated as a separate month salary and spread over the period of 12 months to determine the applicable tax rate.



II. Non-employment income

A non-PRC tax resident who receives income, other than employment income, from China is subject to IIT, which includes:

    • Income from sole proprietors and merchants’ production and business operations;
    • Income from contracting or leasing provided to enterprises and institutions;
    • Remuneration for labor services;
    • Author’s remuneration;
    • Income from royalties;
    • Income from interests and stock dividends;
    • Income from the lease or transfer of property.


The IIT rate for non-employment income ranging from 5% to 35% depending on the income source.


VALUE ADDED TAX


All enterprises and individuals who are engaged in the sales of goods, the provision of processing, repair and replacement services, or the importation of goods, within the PRC territory, are subject to Value Added Tax (“VAT”).


VAT operates on a credit system which the input VAT paid on purchase of goods and certain services are generally creditable against the output VAT paid on sales. The standard rate for VAT is 17%, but the rate for certain basic commodities such as grain, cooking oil, running water, forage, fertilizer, pesticide and farming machinery is subject to 13%. In addition, zero rate is applicable to the goods declared to export. The export goods qualify for the zero rate or tax-exempt except those restricted from exportation.

For small-scale taxpayers, the applicable VAT rate is 3% on the sales value with no credit or deduction is allowed for input VAT paid.



BUSINESS TAX

All enterprises and individuals who are engaged in transportation, finance and insurance, construction, art, sports, entertainment, services, transfer of intangible assets and immovable properties are subject to Business Tax. The tax rates are ranging from 3% to 20% according to the nature of the industry:


Nature of industry

Tax Rate

  • Transport industry
  • Construction industry
  • Post & telecommunications industry
  • Culture and sports industry


3%

  • Financial and insurance industry
  • Service industry
  • Transfer of intangible assets
  • Sale of immovable properties


5%

  • Entertainment industry

5% – 20%


FILING DEADLINE

  • Corporate Income Tax


According to the CIT law, the CIT should be calculated and prepaid on quarterly basis and make annual filing in year-end.

The enterprises have to submit quarterly CIT return and to pay the CIT within 15 days after the quarter-end. After year-end, the enterprises should submit their financial reports and annual CIT returns to tax authorities and pay the balance of CIT payable (after deduction of tax prepared) within 5 months after year-end.

  • Individual Income Tax


IIT on wages and salaries is calculated and levied on a monthly basis. The employers act as the withholding agents to withhold IIT from wages and salaries payable to employees on a monthly basis and submit IIT withholding returns and make the tax payments to the local tax bureau in-charge within 15 days after the end of the month.

An individual taxpayer with annual taxable income of more than RMB120,000 per annum would be required to self-report his/her taxable income to the local tax bureau within 3 months after the year end.

  • Value Added Tax and Business Tax


The assessable period for VAT and BT could be 1 day, 3 days, 5 days, 10 days, 15 days, one month or one quarter. Tax that cannot be assessed in regular periods may be assessed on a transaction-by-transaction basis.


Taxpayers that adopt one month or one quarter as an assessable period shall report and pay tax within 15 day following the end of the assessable period. If an assessable period is one day, three days, five days, 10 days or 15 days is adopted, the tax shall be prepaid within 5 days after the end of period, and a monthly return shall be filed for any balance of tax due within 15 days from the first day of the following month.


OTHER DUTIES FEES AND CHARGES


Consumption tax:






It is imposed on the production, subcontracting for processing or importation of 14 commodities include alcoholic drinks or alcohol, cosmetics, jewellery, fireworks, gasoline, diesel, automobile tire, motorcycle. The tax is computed based on sales price and/or sales volume.
Stamp duty:Levied on contracts made in China in respect of purchase and sales, processing contracting engineering project, asset leasing, transportation, storage and warehouse, loan, asset insurance, technology contract, transfer of property rights, accounting ledger, royalty license. The tax rate ranging from 0.05% to 1%.
Deed tax:



3% to 5% on the transaction price or value of the assignment or transfer of the ownership title of the land use rights and/or the buildings.
Real estate tax:


1.2% on the original value of the real estate after certain deduction or 12% of the rental value.
Land value appreciate tax:Levied on realized gains on the assignment or transfer of land use right, buildings and the associated structure at progressive rate from 30% to 60%.
Vehicle purchase tax:10% purchase tax rate will be levied on all vehicle purchases, including new car purchase, import, reward and gift.
Vehicle and vessel use license tax:Levied on a fixed amount (depending on different type of vehicles and vessels) annually on the owners of vehicles and vessels used in China.
Customs duty:Imposed on all goods permitted to be imported into or exported out of China. The duty charged depends on the nature and country of origin of the imported goods.


This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.