China

2012 Tax rates of People's replublic of China

Corporate tax

Rate

The corporate tax rate of China is 25%. Corporate tax is imposed on company profits after the deductions of allowable expenses and losses, non-taxable and tax-exempt items, and carryforwards from prior years´losses. All costs connected to ongoing business operations are allowed except for those labeled as non-deductible. Enterprises that are of smaller scale enjoy a tax rate of 20% and businesses that are considered high-tech are favoured, thus paying a tax rate of 15%. There are some favoured industries receiving even lower tax rates, albeit during a limited number of years. The industries favoured are either part of a specific business area deemed strategically important such as new high-tech enterprises, or are situated in a geographically favoured location (as is the case in western China).

Taxation of dividends

If dividends are received from a foreign entity they are included in taxable income and thus subject to the income tax rate of 25%. Dividends payed from one resident company to another are tax exempt up to a certain limit.

Capital gains

Capital profits and losses are added to other operating income and taxed according to the company tax rate.

Losses

Losses can be carried forward for the next 5 years. No carryback of losses is allowed.

Withholding tax

Dividends paid to a non-resident company (providing the rate isn´t reduced by corresponding tax treaty) have an imposed 10% withholding tax, which is lowered from a 20% statuatory rate.

There is a 10% withholding tax for interest rate paid to a non-resident (providing the rate isn´t reduced by corresponding tax treaty), lowered from 20% statuatory rate. There is also a 5% business tax.

There is a 10% withholding tax for roualties paid to a non-resident (providing the rate isn´t reduced by corresponding tax treaty), lowered from 20% statuatory rate. There is also a 5% business tax, but it may be waived if royalties are paid for transfer of what is considered to be qualified and strategic technology.

 

Individual tax

General

Individuals domiciled in the Chinese Mainland is considered a resident for tax purpose on their worldwide income. Non-domiciles, staying in China less than 1 year are taxed only on income coming from China. Non-domiciles staying in China 1 to 5 years are taxed on income coming form China as well as income from abroad borne by chinese entities. Non-domiciles staying more than 5 years are taxed on thier worldwide income from years 6 and onwards.

Taxable income

China imposes a multiple category layer. Employment income, business and production income, income from contracting or leasing operations of enterprises, leasing operations income, dividends and bonuses, interest income (bank deposit income excluded), royalty income, income from transer of property, contingency income and other income labeled as taxable by the finance department.

Rates

There are seven progressive tax rates from 3% up to 45% on salaries. Income from leasing, royalties, dividends, income from transfer of property, income from manuscricpts, and contingency income are all taxed at 20%. Bank deposit income is exempt (for the moment) from individual income (previosuly taxed at 5%). Income dervied from personal services is taxed progressively up to 40%.

Penalties

A late payment penalty charge of 0,05% on a daily bases calculated on the amount of underpaid tax.

Capital gains

Profits coming form the sale of property after expenses and taxes have been deducted are subject to a 20% tax rate. Individuals are exempt from capital gains taxes on their private housing if the have occupied it for more than 5 years time.

Deductions

Individuals are entitled a monthly deduction of RMB 3.500 (RMB 4.800 for foreign nationals) for salaries received in China. Housing funds payments, medical insurances and pension and unemployment insurance payments are also deductible.

Real Estate

Property rentals is subject to 12% real estate tax. A business tax of between 3% and 5% is imposed on sale of immovable property.

Net Worth Tax

No

Inheritance Tax

No

Social Security

The total employer Social Security contribution can be up to 40% of emploee base salary, with significant variations across the country. Employers are required to contribute 20% of payroll to the retirement-scheme administered by the state. The employer also contributes to a medical iinsurance fund, and work-related injury insurance.

VAT

VAT applies to supply of goods, repair or replacement services, provision of processing and import of goods. An ongoing pilot program aims to include the sevice industries under tha VAT taxation rules (the pilot program rates are 17% for leasing of moveable/tangible goods and 11% for trasportations sector. Other modern services have a VAT of 6%) . The standard VAT rate is 17%. A lower rate of 13% applies to specific types of food, goods, utilities and books. Lower transactions apply to certain transactions. Exports are zero-rated in most instances.

Consumption tax ranging between 1% and 45% applies to certain oods such as alcohol, cosmetic, jewelry, tobacco et c

Business tax is a turnover tax imposed on certain services, the sale of immovable property and assignment of intangible assets. Business tax rates usually vary between 3% and 5%.

 

Other

Tax year. Calendar year.

Tax treaties. China currently has approximately 90 treaties.

Filing requirements. Paid monthly and submitted before the 15th of the following month.

Registration (for VAT purpose). If the company has their taxpayer status approved they must also register for VAT purposes.

 

Links

Tax authorities. Ministry of Finance, State Administration of Taxation

Consulate

Local Tax Resources

Chamber of commerce

(Online realtor/stock exchange)