Country Tax Guide www.bakertillyinternational.com
Country Tax Guide China Corporate Income Taxes There is no definition of a company in Chinese tax law and taxes on trading income are imposed on business enterprises generally. Resident enterprises, defined as those which are established in China, or which are established in a foreign country but which have their place of effective management in China, are taxed on their worldwide income. Other enterprises are taxed only on their income from sources in China, subject to the terms of any relevant double tax treaty. The Special Administrative Regions of Hong Kong and Macau are not within the tax jurisdiction of China, and enterprises established in the Regions are subject to tax in China only if they have their place of effective management there or if they have income arising there. The general rate of corporate income tax is 25%. A reduced rate of 20% applies to enterprises with annual taxable income of less than 300,000. Other requirements must also be met, including Total assets of less than 30m and fewer than 100 employees for industrial enterprises, or Total assets of less than 10m and fewer than 80 employees for all other enterprises. Capital gains are taxed in the same way as income. Enterprises may carry forward losses for relief against future profits for up to five years. There is no provision for losses to be carried back for relief against earlier profits. There is no tax consolidation facility for groups of enterprises. The tax year is the calendar year. Tax returns must be filed within five months of the tax year-end (ie for tax year 2013, by 31 May 2014). Tax liabilities must be paid on an estimated basis each month or quarter. Any balancing amount due must be paid within five months of the tax year-end (thus, for tax year 2013, the balancing payment is due by 31 May 2014). The period for filing final tax returns can be extended in special circumstances, provided it is applied for within the specified filing period.
Personal Taxes Resident individuals are generally taxed on their worldwide income. Foreign nationals who are resident in China for less than five years are usually taxed only on their income from sources within China. Non-resident individuals are taxed only on their income from sources in China. Resident individuals are taxed at the following rates on wage and salary income: Monthly Taxable Income Tax Rate 0 1,500 3% 1,501 4,500 10% 4,501 9,000 20% 9,001 35,000 25% 35,001 55,000 30% 55,001 80,000 35% Over 80,001 45% For individual industrial and commercial households incomes, the tax rates are as below: Monthly Taxable Income Tax Rate 0 15,000 5% 15,001 30,000 10% 30,001 60,000 20% 60,001 100,000 30% Over 100,001 35% The standard monthly deduction against taxable income is 3,500 with an additional monthly deduction of 1,300 for certain individuals, such as foreign nationals and expatriate employees. Capital gains are taxed as income. There are no inheritance, gift or wealth taxes.
Country Tax Guide China Employment Related Costs and Taxes Fringe benefits Fringe benefits which do not represent money or money s worth, and are not convertible into cash, are not taxed in the hands of the employee. The manner in which benefits are granted should not amount to the discharging of an employee s liability by an employer. Otherwise, the benefit is taxable. For expatriate employees, housing, meal, laundry, relocation and reasonable travel allowances received in non-cash form, or as reimbursement for expenses incurred, are provisionally exempt from individual income tax in China. Payroll tax There is no payroll tax in China. Social security costs Employers located in cities, and their employees, are required to pay social security contributions to the relevant local authority. The rates vary from city to city. Withholding Taxes Domestic payments Dividends, interest and royalties paid to resident companies, or to non-resident companies with a permanent establishment (PE) in China, are generally included in taxable corporate income (headline rate 25%). Certain qualifying dividends from equity investment gains are exempt. Where such payments are made to individuals, a general withholding tax rate of 20% applies, with the following exceptions: Interest payments made from savings accounts are exempt The rate in relation to listed shares depends on the period for which they are held: 5% if held for more than one year 10% if held for between one month and one year, and 20% if held for one month or less.
Payments abroad Dividends, interest and royalties paid to non-resident companies without a PE in China, or with a PE to which incomes are not attributed, are subject to a 10% withholding tax (reduced from 20% for an unspecified period since 2000). Dividends paid out of pre-2008 profits are exempt. The payment of technical assistance fees can in some circumstances be classed as royalties and accordingly become subject to withholding tax. For payments made to recipients in countries with which China has a double tax treaty, the withholding tax may be reduced or eliminated. Value Added Tax (VAT) VAT is levied on the selling price of goods and of some services, and on the value of imported goods. Business enterprises generally must register for the tax, but individuals with a low turnover are exempt. There is no registration threshold for resident and non-resident businesses. The standard VAT rate is 17%, although reduced rates of 0%, 3% and 13% apply to certain goods and services. Enterprises can usually recover the VAT with which they themselves are charged, but there are some exceptions. Period VAT returns are filed monthly. The deadline for filing is 15 days after the end of the period. A pilot scheme of VAT reform being conducted in several provinces and cities (Anhui province, Beijing, Fujian province, Guangdong province, Hubei province, Jiangsu province, Shanghai, Tianjin, and Zhejiang province) has introduced several reduced VAT rates ranging from 3% to 11% on goods and services such as transport, IT services and property leasing. The scheme is to be extended nationwide in the transport and modern service industry (including IT) sectors from 1 August 2013. Business Tax Business tax is charged on the selling price of goods and services which are not subject to VAT, but with several exceptions. Rates vary, and include 3% for construction, telecommunication and transportation services, 5% for sales of property and for service industries generally, and up to 20% for the entertainment industry. Unlike VAT, enterprises cannot recover the business tax with which they themselves are charged.
Country Tax Guide China Other Taxes Deed tax Contracts for the sale or lease of real estate are subject to deed tax at rates ranging from 3% to 5% of the capital value. Land appreciation tax Increases in the value of land and buildings which arise from the disposal of usage rights are subject to land appreciation tax at rates ranging from 30% to 60%. Other real estate taxes Enterprises occupying real estate in towns and cities must pay an urban land use tax to the local government authority. The tax is calculated by reference to the size of the property occupied, with the rate per square metre varying depending on the size of the town or city. Enterprises must also pay a house property tax to local authorities. The tax applies to all buildings occupied, not only houses, and is based on the assessed value of the property or the rental income it generates. Stamp duty Stamp duty is charged on documents evidencing transactions, generally at rates from 0.005% to 0.1% of the capital value. Transfers of shares are charged at 0.1% of their value. Environment tax There is currently no general tax based on environmental issues, although there is a limited pollutant emission surcharge in place. Consumption tax Consumption (excise) tax is imposed at various rates on a number of goods, including tobacco, alcoholic drinks, certain automobiles and motors, gasoline, diesel oil, vehicle tyres, cosmetics, luxury jewellery and fireworks.
Tax Incentives for Businesses Research and development (R&D) expenditure For R&D expenses incurred in the development of new technologies, new products or new production techniques, a 50% additional deduction may be granted if the expenses are not capitalised as intangible assets but are instead recorded directly in an enterprise s income statement for the current period. If the expenditures are capitalised as intangible assets, 150% of the expenditures can be amortised. Enterprises which produce high technology goods or services falling within a government prescribed list are eligible for a reduced 15% rate of tax provided conditions are satisfied. The conditions are extensive, and relate, for example, to the ratio of R&D expenditure to turnover, the proportion which sales of high technology goods and services bears to total turnover, the ratio of research staff to total staff, and the proportion of research staff with a university degree. Environmental sector Businesses providing energy-saving services are eligible for full corporate income tax exemptions in the first three years, and a corporate income tax rate of 12.5% for the second three years. Eligible years are calculated from the first year in which business income arises. Those in the energy saving, environment protection and production safety industries can use 10% of their investments in equipment to offset their income tax payable, and this can be carried forward for five years. Businesses in the comprehensive resources utilisation sector (which aims to recycle and reuse industrial waste materials) can benefit from a 10% corporate income tax exemption.
Country Tax Guide China Other incentives Businesses involved in agrarian industries and those appointed as reserve stockholders of grain, oil, sugar, cotton and meat benefit from corporate income tax exemptions. A reduced income tax rate of 15% applies for high or new technology ventures eligible for key support from the state. Venture capital enterprises may be eligible for a 70% reduction of the amount invested from their taxable income if they have invested in encouraged small or medium-sized high technology enterprises for more than two years. Newly established software or integrated circuit design businesses are exempted from corporate income tax for the first two profitable years and enjoy a 50% reduction in corporate income tax for the subsequent three years. Businesses engaged in agriculture, fisheries and forestry are subject to reduced rates of tax. Also, businesses undertaking public infrastructure and environmental protection projects can benefit from reduced rates of tax on their income from those projects.
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