China Tax Policy for Foreign Companies – The Common Q&A

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Introduction

Have questions for China tax policy for foreign companies?

You’re in the right place to find out the answers then.

We cover the common Q&A in this article including: the types of taxes in China, those for foreign companies. And how to make money with the preferable tax policy currently.

Enjoy reading below.

China tax policy #1: How many types of taxes are in China?

The tax policy in China has gone through a process in adding, simplifying and merge.

As a result, there are 18 types of taxes in China now.

And among the various types, there several categories as below

Taxes for goods and services

  1. VAT (value-added tax)

  2. Excise Tax

  3. Vehicle Purchase Tax

  4. Customs Duty

Taxes for income

  1. Enterprise Income Tax

  2. Individual Income Tax

Taxes for property and behaviour

  1. Land Appreciation Tax

  2. Real Estate Tax

  3. Urban and Township Land Use Tax

  4. Farmland Occupation Tax

  5. Deed Tax

  6. Resource Tax

  7. Vehicle and Vessel Tax

  8. Stamp Tax

  9. Urban Maintenance and Construction Tax

  10. Tobacco Tax

  11. Vessel Tonnage Tax

  12. Environmental Protection Tax

Now, let’s take a closer look into the 18 types of taxes as part of the China tax policy.

We’re going through them one by one from the aspects of applicable taxpayers, subjects/base of taxation, and tax rates.

A closer look into the 18 types of taxes in China

VAT (value-added tax)

Taxpayers: The unit or individual responsible for selling goods or providing processing, repair and installation services following the provisions of the tax law. Or units or individuals that sell labour services, intangible assets, real estate or import goods into China within the territory of China. Then, VAT taxpayers include general taxpayers and small-scale taxpayers. This is by the size of business scale and accounting standards such as sound.

Subjects/base of taxation: Sales of labour services, intangible assets or real estate. Transportation industry and modern service industry (including R & D and technical services, information technology services, cultural and creative services, logistics auxiliary services, authentication and consulting services).

Tax rates: According to the business scale and product / service category, there are 13%, 9%, 6%, 5% and 3% tax rates.

Excise Tax

Taxpayers: If you produce or commission processing or retail and import consumer goods that meet the corresponding tax in China, then you need to pay consumption tax.

Subjects/base of taxation: Tobacco, alcohol, cosmetics, oil products and other 15 categories of consumer goods.

Tax rates: Some levy ad valorem tax, some levy unit tax. And, some products apply to both.

Vehicle Purchase Tax

Taxpayers: If you buy a taxable vehicle in China, you will have to pay a vehicle purchase tax.

Subjects/base of taxation: Automobiles, motorcycles, trams, trailers and agricultural transport vehicles purchased in China.

Tax rates: The vehicle purchase tax shall be calculated according to the fixed rate according to the price. The calculation formula is tax payable = taxable price × tax rate.

Customs Duty

Taxpayers: If you are the consignor of the imported goods or the consignor of the exported goods or the owner of the imported articles, you need to pay the customs duties.

Subjects/base of taxation: The quantity of goods and articles allowed to be imported and exported.

Tax rates: Some levy ad valorem tax, some levy unit tax. Some products apply to both at the same time.

Enterprise Income Tax

Taxpayers: In China, both resident and non-resident enterprises need to pay enterprise income tax.

Subjects/base of taxation: The profit margin of resident enterprises and non-resident enterprises.

Tax rates: The enterprise income tax rate is 25%. 20% for non-resident enterprises.

Individual Income Tax

Resident Taxpayers: If you have a residence in China, or if you have lived in China for more than 183 days, you will have to pay personal income tax.

Subjects/base of taxation for resident taxpayers: The income you earn in China.

Non-resident taxpayers: If you don’t have a residence in China, or you have lived in China for 183 days in total, you will have to pay personal income tax.

Subjects/base of taxation for non-resident taxpayers: Income derived in China.

Tax rates: Comprehensive income: progressive tax rate of 3% to 45%; business income: progressive tax rate of 5% to 35%; interest, dividend, lease or transfer of property income, contingent income: 20% of the proportional tax rate.

Land Appreciation Tax

Taxpayers: If you transfer the right to use state-owned land, above-ground buildings and ancillary facilities in China, the income you get will be subject to land value-added tax.

Subjects/base of taxation: The value-added part of your income from the transfer of land.

Tax rates: Different from the pre levy rate of land value-added tax, the land value-added tax adopts four levels of progressive rate of excess rate:

According to the land value-added tax rate table, the tax rate is 30% for the part whose value-added does not exceed 50% of the deduction amount.

If the value-added value exceeds 50% of the deduction amount and does not exceed 100% of the deduction amount, the land value-added tax rate is 40%.

If the value-added value exceeds 100% of the deduction amount and does not exceed 200% of the deduction amount, the land value-added tax rate shall be 50%.

According to the land value-added tax rate table, the tax rate is 60% if the value-added exceeds 200% of the deduction amount.

Real Estate Tax

Taxpayers: All behaviours directly related to the real estate economic movement need to pay real estate tax.

Subjects/base of taxation: Direct taxation of real estate in China.

Tax rates: Self-owned houses are taxed according to the residual value, and the tax rate is 1.2%.

Rental housing is taxed based on rental income, and the applicable tax rate is 12%.

What’s more, the rent of an individual owned house is taxed at 4% of the rental income.

Enterprises and institutions rent housing, social organizations and other entities are taxed at a preferential tax rate of 4%.

Urban and Township Land Use Tax

Taxpayers: Entities and individuals use land in cities, counties, administrative towns, industrial and mining areas.

Subjects/base of taxation: The area of land actually occupied by taxpayers.

Tax rates: The use tax of urban land uses a range of differential tax.

0.5-30 yuan per square meter in big cities.

0.2-24 yuan per square meter in medium-sized cities.

0.9-18 yuan per square meter in small cities.

0.6-12 yuan per square meter in counties, towns and industrial and mining areas.

Farmland Occupation Tax

Taxpayers: If you use cultivated land to build houses or engage in other non-agricultural construction in China, then you need to pay the farmland occupation tax.

Subjects/base of taxation: The area of cultivated land actually occupied by taxpayers.

Tax rates: Considering the differences in objective conditions between different regions, as well as the differences in tax regulation and taxpayers’ affordability. Therefore, the farmland occupation tax rate design adopts the regional differential quota tax rate. Specific provisions of the tax law can be referred to.

Deed Tax

Taxpayers: If you transfer the ownership of land and housing in China, then you need to pay deed tax.

Subjects/base of taxation: The market price of the transfer of land use right and house ownership, or the price difference formed by the exchange of land use right and house ownership.

Tax rates: The contract tax rate is 3% – 5%. The implementation of the range tax rate is based on the fact that China’s economic development is not balanced and there are large economic differences among different regions. Therefore, the people’s governments of all provinces, autonomous regions and municipalities directly under the central government can decide according to the actual situation of the region within the prescribed range of 3% – 5%.

Resource Tax

Taxpayers: If you mine taxable minerals or produce salt in China, you need to pay a resource tax.

Subjects/base of taxation: There are seven categories. Crude oil, natural gas, coal, other non-metallic ore, ferrous metal ore, non-ferrous metal resource tax, raw ore, salt.

Tax rates: According to ad valorem or resources, such as crude oil and natural gas, 5% – 10% of sales.

Vehicle and Vessel Tax

Taxpayers: No matter you are an enterprise or an individual, if you own or manage vehicles and vessels in China, you need to pay vehicle and vessel tax.

Subjects/base of taxation: Vehicles and vessels registered in China.

Tax rates: Fixed tax rate is adopted for vehicle and vessel tax. However, this does not mean that all vehicles and ships have the same tax rate. The specific applicable tax amount shall be implemented following the tax items and tax amount table of vehicle and vessel tax attached to the vehicle and vessel tax law.

Stamp Tax

Taxpayers: Units and individuals who have concluded or received taxable documents within the territory of China shall pay stamp duty.

Subjects/base of taxation: The tax authorities shall levy taxes according to the tax documents that have been concluded or received.

Tax rates: Stamp duty has a uniform rate of a fixed amount.

Urban Maintenance and Construction Tax

Taxpayers: Units and individuals that bear the obligation to pay urban maintenance and construction tax, and units that pay value-added tax, consumption tax and business tax (turnover tax). These units do not include foreign-invested enterprises, foreign enterprises and importers of goods. Besides, there are individual taxpayers of urban maintenance and construction tax.

Subjects/base of taxation: It includes cities, counties, towns and other areas where taxation as stipulated by the tax law. Please note that the scope of cities, counties and towns should be divided according to administrative divisions. It is not allowed to expand or narrow the jurisdiction of each administrative region at will.

Tax rates: Three tax rates depending on the taxpayers’ location, i.e. 7% for the urban area, 5% for county towns and towns, and 1% for areas other than the urban area, county towns or towns.

Tobacco Tax

Taxpayers: It is well known that smoking is harmful to health. If your company is engaged in tobacco purchasing activities in China, then you have to pay tobacco tax. Tobacco tax is a policy measure to reduce smoking.

Subjects/base of taxation: The national government will levy tobacco tax on tobacco production enterprises, tobacco purchasing enterprises and tobacco sales enterprises.

Tax rates: Tobacco tax mainly includes value-added tax and consumption tax. Tobacco belongs to the sale of goods, and the VAT rate is 17%. The consumption tax is for different types of tobacco tax, levy different consumption tax. For details, please refer to the provisions of the notice on adjusting cigarette consumption tax issued by the State Administration of taxation.

Vessel Tonnage Tax

Taxpayers: If a foreign ship sails in and out of China’s ports, it needs to pay tonnage tax.

Subjects/base of taxation: According to the tonnage of ships entering Chinese ports from foreign ports, the government will levy taxes.

Tax rates: The tax authorities will collect taxes according to the prescribed tax rate, which includes preferential tax rate and normal tax rate. The amount of tax payable varies with the tonnage of vessels. Besides, tugs and non-motorized barges are taxed at 50% of the same net tonnage ship tax rate.

Environmental Protection Tax

Taxpayers: The business activities of producers and operators have caused environmental pollution damage to China’s territory or sea area. Or their business activities have high energy consumption and high consumables. Then they have to pay environmental taxes.

Subjects/base of taxation: According to the provisions of the environmental protection tax items and taxes table of the people’s Republic of China and the environmental protection tax law of the people’s Republic of China. For example, air pollutants, water pollutants, solid waste, noise pollution, nuclear pollution and so on.

Tax rates: The tax rate of Environmental Protection Tax is a case-by-case calculation. Therefore, there is no fixed tax rate for an environmental protection tax. It shall be implemented by the environmental protection tax items and tax amount table attached to the environmental protection tax law.

China tax policy #2: What types of taxes do foreign companies need to pay?

The latest Foreign Investment Law has been effective on 1 Jan 2020 in China. As a result, the difference between foreign companies and local companies remain little.

Except for the restricted and prohibited industries, the thing making foreign companies different is the nationality of the owners/shareholders.

In other words, in most cases, the tax policy for foreign companies remain the same as the Chinese local companies.

The applicable tax types and tax rates vary from business-scales, industries and product/service categories though.

And the details might be different from one case to another.

But it worth our attention when choosing the business scale and scopes at the company registration process. The reason is, it can result in a huge influence on your tax payment later.

It’s common to see 2 companies are doing the business, but the tax payments are largely different. This can be a result of different business scale and scopes listed on the license.

So, find a reliable partner for your business registration in China. And for your the taxation plan as well.

China tax policy #3: How to make more money under the current tax policy in China?

To lower the tax burden for enterprises in China, the Chinese government has saved their efforts. As a result, the establishment of a bunch of preferable tax policies all these years.

VAT

Preferences for China VAT tax rate 2020 extended to the end of the year

As we all know, the epidemic has had a great impact on our lives and every cause.

Fortunately, China is much better now.

The Chinese government has made a lot of efforts to restore the economy. Since last year, the government has implemented a series of policies to reduce the burden on many VAT taxpayers. The application period has been extended to the end of 2020.

For example, reduce the VAT rate of small-scale taxpayers; pay VAT for the following services: accommodation, tourism, entertainment, culture and sports.

More favourable policies by the Chinese government

Favourable tax policies for goods and services related to the epidemic of COVID-19:

  1. If manufacturing enterprises expand production due to epidemic disease procurement, the government allows enterprises to pay less tax after paying taxes.

  2. Taxpayers who obtain income from transporting goods related to epidemic diseases shall be exempted from VAT.

  3. In 2020, the enterprise can make up for the losses caused by the epidemic in 8 years.

  4. The government does not levy value-added tax on the following income: public transport services, living services and postal services.

  5. If enterprises or individuals donate money and materials for epidemic prevention, their value-added tax can be deducted in proportion to the amount of donation.

  6. If the donor donates articles to the hospital designated by the government, VAT can be deducted in proportion to the donation amount.

  7. Individual businesses may donate epidemic prevention articles free of charge. In return, they will enjoy a series of tax breaks.

And the above policies are effective until the end of 2020 as well.

You can also find the preferable tax policy for VAT on china vat tax rate 2020

Import tax

Preference for imported self-use equipment

According to Notice No. 35 of 2007. If a foreign investment company has a good business operation, it is encouraged by the Chinese government. Then, when the company imports self-use equipment and its accessories, supporting technology and spare parts in line with the regulations. The company does not have to pay customs duties on the import of this equipment and accessories.

Also, if the foreign-invested company is located in a specific area of China. The company will enjoy more preferential import tax policies introduced by the governments in these regions.

Preferential import tax on some goods

From January 1, 2020, China will implement the provisional import tax rate on more than 850 kinds of commodities. The temporary import tariff rate is even lower than the MFN rate.

The import tax rate of consumer goods is lower than before. For alkaloids and new diabetes drugs, the raw material tax rate is zero. The tax rate of imported technology and equipment in high-tech industries has decreased significantly.

From July 1, 2020, China will implement the fifth tax reduction for 176 information technology products.

Applying for the cancellation of tariff increase

From March 2, 2020, China will cancel the tariff from the United States and implement the market-oriented procurement of commodities. Enterprises may not apply for additional countervailing duties to the United States for qualified imported goods imported from the United States. Although the policy seems a bit complicated, the tax exemption procedure is very simple and convenient. So don’t worry.

Find more on Chinese import tax

Tax return

To avoid double taxation on our export commodities entering the international market and ensure that our export commodities can compete fairly with foreign commodities. The Chinese government will refund the consumption tax and value-added tax on exported goods to enterprises. Export tax rebate is conducive to enhancing the competitiveness of domestic products in the international market.

To promote the development of international trade, countries should refund the indirect tax on export goods according to international practice. Therefore, the tax rebate for export products is “international practice” rather than “policy preference”. At present, many countries in the world have adopted this measure.

At present, China is further increasing the preferential policy of export tax rebate. As long as your enterprise meets the corresponding conditions, you can enjoy the export tax rebate.

If you’re interested in this topic, also read Chinese tax return.

Conclusion

We discussed several things about China tax policy in this article today.

  • The 18 tax types in China. And their details including taxpayers, subjects/base of taxation, and tax rates.

  • Tax types involve foreign companies. Currently, the tax policies for most foreign companies remain the same as the local enterprises.

  • How to earn more with the preferable tax policy in China at the moment.

If you find this article useful, don’t forget to help more people by sharing it. And keep your eyes on our latest posts. You will find more solid tips on foreign businesses in China.

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