Overview
of China's Tax system
China is one
of the biggest markets in the world and is attracting more and more global
investors to move into the China market. In order to run the business in a most
cost efficient way, it is necessary for the foreign investors to understand all
the potential relevant tax costs that would be incurred in China before making
an investment decision. In addition, different type of investment activities
will trigger different types of taxes. We provide below a brief introduction of
the PRC taxation system.
Major
Taxes in the PRC
The major
taxes applicable to foreigners, foreign investment enterprises
("FIEs") and foreign enterprises ("FEs") doing business in
China are as follows:
Category
|
Type of
Tax
|
Tax on
income
|
- Corporate income tax
("CIT") - standard tax rate is 25%, but the tax rate could be
reduced to 15% for qualified enterprises which are engaged in industries
encouraged by the China government (e.g. New/high Tech Enterprises and
certain integrated circuits production enterprises). Tax holiday is also
offered to enterprises engaged in encouraged industries. Other CIT
incentives are also available for tax resident enterprises in China.
- Withholding income tax on
payments to non-residents - a concessionary rate of 10% is currently
applicable to interest, rental, royalty and other passive income.
- Individual income tax
("IIT") - progressive rates range from 3% to 45%.
|
Tax on
transactions (turnover tax)
|
- Value-added tax - applies to
the sale of goods, except real estate properties, and the provision of
labour services in relation to the processing of goods and repair and
replacement services within China. The standard tax rate is 17% with certain
necessities taxed at 13%.
- Consumption tax - applies to
14 categories of consumable goods, including tobacco, alcoholic drinks,
cosmetics, jewellery, fireworks, gasoline, diesel oil, tires,
motorcycles, automobiles, golf equipment, yacht, luxury watch,
disposable chopsticks and wooden floorboard. The tax is computed based
on sales price and/or sales volume.
- Business tax - applies to the
provision of services (excluding processing services and repair and
replacement services), the transfer of intangible properties and the
sale of real estate properties in China. Tax rates range from 3% to 20%.
|
Tax on
specific objective
|
- Land appreciation tax - a tax
levied on the gains realised from real property transactions at
progressive rates ranging from 30% to 60%. The gain is calculated based
on the "land value appreciation amount", which is the excess
of the consideration received from the transfer or sale over the
"total deductible amount".
|
Tax on
resource
|
- Resources tax - a tax levied
on natural resources, generally on a tonnage or volume basis at rates
specified by the Ministry of Finance. Taxable national resources include
crude oil, natural gas, coal, other raw non-metallic minerals, raw
ferrous metals, nonferrous metallic minerals and salt (both solid and
liquid).
|
Tax on
property
|
- Real estate tax - a tax
imposed on the owners, users or custodians of houses and buildings at
the rate at either 1.2% of the original value with certain deduction or
12% of the rental value.
|
Tax on
behaviour
|
- Vehicle and vessel tax - a tax
levied at a fixed amount annually on the owners of vehicles and vessels
used in the China.
- Motor vehicle acquisition tax
- 10% of the taxable consideration will be levied on any purchase and
importation of car, motorcycles, trams, trailer, electric buses, cart
and certain types of trucks.
- Stamp tax - a tax levied on
enterprises or individuals who execute or receive "specified
documentation" in China and the tax rates vary between 0.005% to
0.1%.
|
Tax
levied by the Customs
|
- Customs duties - duties are
imposed on goods imported into China and are generally assessed on the
CIF (cost, insurance and freight) value. The rate of duty depends on the
nature and country of origin of the imported goods.
|
Tax
levied by finance department
|
- Deed tax - a tax levied on the
transferees or assignees on the purchase, gift or exchange of ownership
of land use rights or real properties, with the tax rates generally
range from 3% to 5%.
|