Chinese Tax Systems
In China, tax can be broadly classified into:
Individual Income Tax
Enterprise Income Tax
Value Added Tax, Business Tax, and Consumption Tax
Stamp Duty, Deed Tax, Land Value Added Tax, Urban and Township Land Use Tax, Real Estae Tax, Farmland Occupation Tax and Resource Tax.
Individual Income Tax
Chinese nationals and foreign individuals who have derived China-sourced income are subject to individual income tax on employment income, business income and other personal income or remuneration. Worldwide tax basis is applied to local chinese nationals and those overseas persons who have stayed in China more than 5 consecutive years. In other cases, specific rules apply to them.
Individual income tax is generally assessed on a monthly basis. Wages and salaries are taxed at progressive rate ranging from 5% to 45% in nine tax brackets. Business income is taxed at progressive rates ranging from 5% to 35% in five tax brackets. A standard tax rate of 20% generally applies to other income categories.
Enterprise Income Tax
Enterprises especially Wholly Foreign-Own Enterprises are subject to enterprise income tax on income derived from sources inside and outside China. Taxable income includes income derived from sales of goods, rendering of services, transfers of properties and income from other sources like dividends, interest, leasing income, royalities, subsidies and other non-operational income. Expenses are allowed to be deducted from sourcedincomes which include cost, expenses, taxes and losses relating to the income derived by the enterprise, some specified expenses which are listed by Tax Law as non-deductible.
The standard enterprise income tax rate is 25%.
Preferential enterprise income tax rates are available to small-scale enterprises:
a) Industrial enterprises with annual taxable profit not exceeding RMB300,000, no. of staff not exceeding 100, and total assets not exceeding RMB30,000,000 are entitled to a reduced tax rate of 20%.
b) Other enterprises with annual taxable profit not exceeding RMB300,000. no. of staff not exceeding 80, and total assets not exceeding RMB10,000,000 are entitled to a reduced tax rate of 20%.
c) Enterprises recognised as state-encouraged high and new technology enteprises and are under new polices in certain regions or locations are entitled to a reduced tax rate of 15%.
d) Foreign tax credit is allowed in certain restricted law in case a tax has been paid to foreign tax authority.
Value Added Tax
Tax is levied on who engages in the sales of goods, and provision of processing, repairs and replacement services within China, as well as the importation of goods into the territory of China. VAT is ascertained as the difference between the output VAT and input VAT.
Small-scale taxpayers are charged on 3% VAT.
Small-scale taxpayers are defined as those tax payers who:
a) are engaged in the production of goods or services whose annual taxable sales value is less than RMB500,000;
b) are engaged in the wholesaling or retailing of goods whose annual taxable sales value is less than RMB800,000;
Otherwise, all taxpayers will be classified as General taxpayers who are charged on 17% VAT in genearl cases.
13% and 6% VAT will be charged on sales and import of specified items.
Export goods are 0% VAT, so can be applied to VAT refund for those who paid the VAT.
Tax is levied on who engages in the provision of taxable services, the transfer of intangible assets and the sale of immovable property within the territory of China. Taxable services include transporation, construction, financial and insurance, post and telecommunications, cultural and sports, entertainment, and other service industries.
Business tax is usually imposed upon gross turnover, costs incurred in relatin to gross income are allowed to be deducted which are specified by China Tax Law. Business tax voers most of the service industries with tax rates ranging from 3% to 20% depending upon the type of services.
Tax is levied on who engages in manufacturing, commission processing or importation of the specified non-essential or luxury consumer goods within the territory of China, which include tobacco, liquor and alcohol, cosmetics, pearls, jewels and jade, firecrackers and fireworks, golf balls and golf equipment, luxury watches, yacht, disposable wooden chopsticks, solid wood flooring, refined oil products, motor vehicle tyres, motorcyeles and motor cars.
There are 14 categories of taxable items which are subject to tax at different tax rates.
Specified documents which need to get protected by PRC laws are subject to stamp duty including various types of contracts, documents of the transfer of property title, business books and accounts, etc.
Tax is imposed on the assignment or transfer of the ownership tile of the land use right and/or the buildings.
Tax is levied on who realises gains on the assignment or transfer of land une right, buildings and the associated structures within the territory of China.
Real Estate Tax
Tax is imposed on the owner or mortgagee of the real estate, arising from the appraised standard values of the land and buildings or the rental income.
Tax is levied on who engages in the extration of certain mineral products and natural resources or the production of salt within the territory of China.
10% withholding tax will be applied to those Chinese-source income of non-resident enterprises without establishments in China. The Chinese-source incomes inlcude dividend income, royality income, interest income, rental income, gains from transfer of assets and other income, and will be held by the withholding agent who is the payer of the incomes concerned.
Note: Our tax expertise will help our client to deal with the complicated tax issues who has entered and or will market their products and services in the whole China.