Last modified: 27/06/2023 14:55

Corporate taxation

	Rate
Corporate income tax rate	25%
Corporate income tax rate for qualified high-tech enterprises	15%

1.  Sole Proprietorship and Partnerships are not applicable for Corporate Income Tax
2. Representative Office of a foreign company is also subject to the rate of 25%

Residence: Resident enterprises are those incorporated in China according to Chinese law, or it is incorporated elsewhere but has the place of effective management (POEM) in China.

Basis: Resident companies are taxed on their worldwide income. If a non-resident enterprise constitutes a permanent establishment (PE), it is taxed on the income derived from the PE in China, as well as the income generated outside of China that is physically connected with the PE, and the 25% income tax rate will be applied.

Taxable income: Corporate income tax is imposed on a company’s accounting profits per PRC GAAP which is broadly a company’s assessable income (including foreign income and net capital gains) less allowable deductions. Exepmted income are not subject to income tax. The NOL of previous years can offset the adjusted profit.(For normal companies, the net losses are valid in 5 years for the use of offsetting)

Significant local taxes on income: No

Alternative minimum tax: No

Taxation of dividends: Dividends are taxable for the recipient company. For dividends received from resident unlisted companies, the tax is exempted. For dividends received from resident listed companies the tax is exempted only if the stocks are held for at least one year. For dividents received from non-resident companies, no tax exemption applied.

Capital gains: Capital gains form part of a resident company’s taxable profits.

Losses: For general companies, losses may be carried forward for 5 years. For qualified high-tech enterprises losses may be carried forward for 10 years

Foreign tax relief: Foreign-source income is included in taxable income without any relief. Foreign taxes paid on foreign-source income can be credited to the extent that the tax calculated in China upon the foreign income.

Participation exemption: No

Holding-company regime: There is no holding company regime.

Tax-based incentives: Incentives include: • Enhanced (175% or 200%) deductions for R&D expenditure • Depreciation for fixed assets(except for houses and buildings) applicable to accelerated depreciation policy and one-time deduction policy

Group relief/fiscal unity: No consolidated filing.

Small company/alternative tax regimes: The small and low-profit enterprises refers to enterprises that meet the three conditions of annual taxable income not exceeding CNY 3 million, employment not exceeding 300, and total assets not exceeding CNY 50 million. The annual taxable income of small and low-profit enterprises not exceeding CNY 1 million is reduced by 25% of the taxable income, and subject to 20% of the corporate income tax rate, with an effective rate of 5%. The portion of the annual taxable income exceeding CNY 1 million but not exceeding CNY 3 million is reduced by 50% of the taxable income, and subject to 20% of the corporate income tax rate, with an effective rate of 10%. This policy is effective until the end of 2024. There is no Alternative tax regimes.

Corporate taxation: compliance

Tax year: Calendar year, Jan. 1 to Dec.31

Consolidated returns: No

Filing and payment: The Corporate Income Tax is prepaid on quarterly basis based on accounting profits . The annual return shall be completed within the first 5 months of the following year.

Penalties: Late filing or payment of taxes are subject to late fees and penalties .

Rulings: Rulings may be obtained from the competent tax authorities .

Taxation of individuals

Type of taxable income	Rate
	Federal Income Tax
Comprehensive income: including wages and salaries, labor income, author’s remuneration Income, royalty income)	3% to 45%
Operating income	5% to 35%
Interest\Dividends\Property leasing income\Income from property transfers\Incidental gains	20%

Residence: Individuals are those who have a residence in China, or who do not have a residence and have resided in China for more than 183 days in a tax year .

Basis: Resident individuals are taxed on their income from within and outside of China. Non-residents individuals are only taxed on income derived from sources within China.

Taxable income: The total income subject to the Individual Income Tax, less deductable expenses, special deductions and special additional deductions.

Capital gains: Capital gains and appreciation derived from the sale or realization of assets through the increased value of a business are subject to tax. The income of dividends from a listed company with the holding period less than a month , the income is fully subject to tax . The income of dividends from a listed company with the holding period more than a month and less than a year , the income is half subject to tax . The income of dividends from a listed company with the holding period more than a year , the income is tax exempted .

Deductions and allowances: For comprehensive income, deductable expenses is RMB 60,000 per tax year. The special deductions include social securities and house fund assumed by employee. The special additional deductions include children’s education, continuing education expenses, housing rent or housing loan interest, expenses for supporting the elderly, infants nursing under 3 years old, and medical expense for serious illness.

Foreign tax relief: If the foreign source income is taxed under the foreign country’s regulation, the tax paid in the foreign country can be credited to the extent that the individual income tax calculated in China upon the foreign income.

Taxation of individuals: compliance

Tax year: Calendar year ,Jan. 1 to Dec.31

Filing and payment: The comprehensive income tax is withheld and paid by the employer on monthly basis. The individuals shall complete the annual individual income tax return from March 1st to June 30th of the following year. The operating income tax is prepaid on monthly or quarterly basis, and the due date is within 15 days of the month end or season end. The annual individual income return for operating income is by March 31st of the following year . The taxes on other taxable income is paid once it happened.

Penalties: Penalties apply for late filing or late payment.

Rulings: PRC Individual Income Tax Law, Regulation for the Implementation of the Individual Tax Law, and STA announcement issued in different years.

Withholding taxes

Type of Payment			Non-residents recipients[1]
			Company	Individual
			Rate (%)	Rate (%)
Provision of labor services			10%	3% to 45%
Transfer of property			10%	20%
Dividends			10%	0%[2]
Interest			10%	20%
Rental			10%	20%
Royalty			10%	3% to 45%

1. If there is DTA between China and the non-resident recipient’s country, the actual withhold tax rate of Non-residents recipients will refer to the DTA instructed.
2. 0% rate only applies for dividends from foreign-invested enterprise or overseas stocks with the company registered in China

Branch remittance tax: No such tax.

Anti-avoidance legislation

Transfer pricing: China has issued some policies on TP. The two main policies are STA 2016 Bulletin 42 about TP documentation and STA 2016 Bulletin 6 focusing on related party transaction and tax authority’s inspection.

Interest restriction: Thin capitalization rules require a maximum debt-to-equity ratio for 2:1 of a general company or 5:1 of a financial company.

Controlled foreign companies: If an enterprise established or controlled by a Chinese resident with an effective tax burden significantly lower than 12.5% doesn’t distribute or reduces the distribution of profits due to reasonable business needs, the portion of the profits attributable to the Chinese resident shall be included in the current income of the resident and subject to corporate income tax.

Hybrid mismatches: No special rules.

Disclosure requirements: Contemporaneous documentation and CbC Reporting for qualifying enterprises.

Exit taxes: No such tax.

General anti-avoidance rule: Special tax adjustment imposes on tax avoidance arrangements implemented by enterprises that do not have a reasonable business purpose to obtain tax benefits.

Digital services tax and Other significant anti-avoidance legislation: No special rules.

Value-added tax/Goods and services tax

Type of tax: Value-added tax (VAT) applies to supplies of most goods and services and to imports.

Standard rate: 13% ,9%,6%

Reduced rates: 0%, 3%, 5%

Registration: All the registered enterprises need to register for VAT.

Filing and payment: The VAT taxpayer is classified as a general taxpayer and a small-scale taxpayer depending on the revenue in a continuous 12 months. The general taxpayer file on monthly basis, within 15 days after the end of month. The small-scale taxpayer file on quarterly basis, within 15 days after the end of the quarter.

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
Pension	14%-16%	8%
Medical Insurance (including Maternity Insurance)	5%-10%	2%
Worker’s Injury Insurance	0.2%-0.4%	0
Unemployment Insurance	0.4%-0.7%	0.2%-0.5%

1.   The rate in the table is a general rate for big cities. The actual rate is vary from different cities, and may change in different years.

Self-employed

There is no general rules. The self-employed person can pay pension insurance and medical insurance on a voluntary basis.

Other taxes

Capital duty: No.

Immovable property taxes: The immovable property taxes include Real Estate Tax and Municipal Land Use Tax . – Real Estate Tax Self-used real estate is subject to tax at the rate of 1.2% on the book value basis . The rental real estate is subject to tax at the rate of 12% on the rental income . – Municipal Land Use Tax The owner or actual user of the municipal land is subject to tax on the square basis . The unit tax ranges from 0.6RMB to 30RMB per square meter according to different cities.

Transfer tax: No.

Stamp duty:

Stamp duty is widely levied . The rates are as follows:

– Borrowing Contract: 0.005%

– Financial Leasing Contract: 0.005%

– Purchase and sale contracts: 0.03%

– Contracting Agreement: 0.03%

– Construction Contracts: 0.03%

– Contract of carriage: 0.03%

– Technology Contracts: 0.03%

– Property Leasing Contracts: 0.1%

– Custodial Contract: 0.1%

– Storage Contract: 0.1%

– Property Insurance Contracts: 0.1%

– Land Use Right Grant Contract: 0.05%

– Land Use Right Transfer

Contract/The ownership of housing and other buildings and structures transfer contract: 0.05%

– Equity Transfer(except Securities Trading): 0.05%

– Contracts for the transfer of exclusive use rights of use trademarks, copyrights, patents and know-how: 0.03%

– Capital books: 0.025%

– Securities Trading: 0.1%

Net wealth/worth tax: No

Inheritance/gift taxes: No

Other: – China imposes consumption tax on specific goods. – China imposes land value-added tax on land and property transfers . – China imposes environmental protection tax on direct discharge of pollutants into the environment . – China imposes a vehicle purchase tax on the purchase of vehicles . – China levies vehicle and vessel tax on the use of vehicles and vessels .

Tax treaties

China has concluded over109 full double taxation treaties on income and has a small number of tax information-exchange agreements. It is also a signatory to the OECD Multilateral Instrument.