Taxation in China: Overview & requirements for businesses from member firm Acclime China

If you have clients with business interests in China, gaining insights into China’s taxation framework will equip you with the knowledge needed to help them operate in China compliantly.

In its latest newsletter, MGI Worldwide member firm Acclime China provides a comprehensive overview of the Chinese tax system, detailing the various tax types, compliance requirements, and key considerations for businesses operating in this market.

Acclime China explains

Corporate Income Tax

The standard corporate income tax (CIT) rate in China is 25%. However, specific industries receive preferential rates to encourage growth: high-tech and pollution prevention industries have a 15% CIT rate, while the software industry enjoys a 10% rate. CIT is declared quarterly, with the final amount determined during the annual filings and year-end audits. Small and low-profit enterprises (SLPEs) with taxable income below CNY 3 million qualify for a 5% CIT rate if they meet conditions related to income, employee count, and asset value.

VAT

Entities in China are classified as general or small-scale taxpayers, affecting their VAT treatment. General taxpayers have tiered VAT rates of 6%, 9%, and 13%, with the ability to offset input VAT. Traded goods typically incur a 13% VAT, while services are taxed at 6%. A sales surtax of 10-12% is also applied. Small-scale taxpayers with revenue under CNY 5 million pay a flat 1% VAT rate until December 2027, without input VAT deduction. If their sales are below CNY 100,000 monthly or CNY 300,000 quarterly, VAT is not applicable. VAT deadlines vary, and tax authorities determine the specific timelines for payment.

Withholding Tax

Foreign enterprises without a physical presence in China are subject to a 10% withholding tax on income such as dividends, interest, property leases, and royalties, unless reduced by a tax treaty. Compliance is ensured by the China-based client, who withholds the tax and manages payments with local tax authorities.

Stamp Duty

Stamp tax applies to enterprises and individuals engaging in taxable documents or securities trading within China, including contracts used in China. Rates range from 0.005% on loan and finance leasing contracts to 0.1% for property leasing and insurance contracts.

Other Business Taxes

• Customs Duties: Rates range from 0% to 35% on imported or exported goods, depending on the item and trade agreements.
• Consumption Tax: Applies to specific goods like tobacco, alcohol, and luxury items, with rates varying to discourage excess consumption and promote sustainability.
• Real Estate Tax: An annual tax of 1.2% on property value or rental income for business use.
• Land Appreciation Tax: Levied on profits from land or property sales, with rates from 30% to 60%.
• Deed Tax: Ranges from 3% to 5% on land-use rights or property transfers.
• Resource Tax: Based on the type and quantity of natural resources extracted.
• Environmental Protection Tax: Targets entities emitting pollutants, with rates based on pollutant type and amount.

Individual Income Tax

Individual income tax (IIT) in China is progressive, ranging from 3% to 45%, and applies to both Chinese and foreign nationals. Residents' income is calculated annually, while non-residents are taxed monthly or per transaction. Employers withhold IIT from employment earnings. Taxpayers must submit returns and prepay taxes monthly or quarterly. Non-residents with multiple income sources in China must declare and pay taxes within the first 15 days of the following month.

Consequences of Missing Deadlines

Failure to meet tax filing and payment deadlines can result in penalties. Authorities may impose fines up to RMB 2,000 for minor infractions and up to RMB 10,000 for serious offences. Late payment penalties range from 50% to five times the unpaid tax amount.

Conclusion

Understanding China's tax system, including different tax types, rates, and deadlines, is essential for compliance and tax efficiency. Foreign investors should consult tax professionals familiar with Chinese regulations to ensure a smooth and compliant experience.

Click to read the full article

For more information visit the Acclime China profile page or website, or get in touch with Maxime Van ‘t Klooster [email protected]

MGI Worldwide, is a top 20 ranked global accounting network and association with over 8,000 professionals, accountants and tax experts in some 400 locations in almost 100 countries around the world.