China Tax Rate for Foreign Company

GEI > News > China Tax Rate for Foreign Company

Introduction

In recent years, foreign companies have developed better and better in China. So, china tax rate for foreign company is also very important when opening foreign companies in China.

Let’s get to know china tax rate for foreign company,

At the same time, China also has many tax incentives. That’s why it has attracted many foreign companies to enter the Chinese market.

If you need news in this area, this article would help you out.

Let’s get to know china tax rate for foreign company.

Taxation of foreign companies

Who is the taxpayer?

  1. It includes Sino-foreign joint ventures, Sino-foreign cooperative enterprises, and wholly foreign-owned enterprises. These enterprises are collective foreign-invested enterprises.
  2. Foreign investors set up Foreign companies, enterprises and other economic organizations in China. And they engage in production and operations.
  3. Some foreign companies have not established institutions or places in China. But they have income from dividends, interest, rent, royalties, etc. These profits are from China. These profits are also taxed.

Discount

China tax rate for foreign company has discount for the following companies:

First: Foreign companies operate in special economic zones and economic development zones. And it is engaged in production and operation.

Second: Foreign investment belongs to encouraged projects. And its operating period is more than 10 years.

Third: Foreign companies are engaged in agriculture, forestry, and animal husbandry.

Fourth: Fourth: Foreign companies operate in remote areas with underdeveloped economies.

Discount for projects

First of all, the above-mentioned enterprises belong to energy, transportation, port, terminal or other projects encouraged by the state.

Then: foreign-owned product export enterprises

In addition, China encourages the expansion and increase of preferential capital investment. And foreign companies make profits in China. Meanwhile, they use these profits to reinvest in their own business. Or they use these profits to invest in other companies. When the operating period of these enterprises is not less than five years, China can refund all the reinvested taxes.

Finally: Preferential treatments are for high-tech enterprises and small low-profit enterprises. The specific content is in the implementing regulations.

Discount for technology of foreign enterprises

In addition, foreign companies provide proprietary technology for important technical projects. In this case, China gives preferential treatments to foreign companies for their royalties.

Tax discount for loan

International financial organizations have interest on loans to the Chinese government and the National Bank of China. This part is exempt from income tax.

At the same time, foreign banks lend to the National Bank of China with interest at preferential interest rates. For this part, China does not charge income tax.

Other discounts

  • Foreign investors obtain profits from foreign-invested enterprises. For this part of the profit, China does not charge withholding income tax
  • Foreign-invested enterprises are exempt from urban construction tax and education surcharges.

Related obligations of china tax rate for foreign company

  • The income tax paid is calculated in RMB.
  • Foreign currency should be converted into RMB to pay taxes.

Relevant penalties

First of all, A taxpayer fails to pay taxes within the prescribed time limit/ And a late payment fee of 2‰ of the late tax payment will be charged on a daily basis from the date of late tax payment.

Moreover, foreign companies fail to handle tax-related matters with the tax authorities within the prescribed time limit . They may be fined up to 5,000 yuan.

Foreign companies still do not handle these businesses after the deadline. Then, China imposed a fine of less than 10,000 yuan.

Meanwhile, foreign companies evade taxes. They are fined less than five times the tax.

For the serious cases mentioned above, according to regulations, China will pursue criminal responsibility for the relevant personnel.

Advantages of China tax rate for foreign company

In the first place, china tax rate for foreign company is conducive to opening up and economic development in coastal areas.

And then, china tax rate for foreign company improves the investment environment and promotes the development of foreign economic and technological exchanges.

Moreover, china tax rate for foreign company facilitates China to reduce taxation of foreign companies.

From the perspective of China tax rate for foreign company, china tax rate for foreign company reduces the taxation of foreign companies.

In this case, it is convenient for foreign companies to choose investment methods. And foreign companies can better calculate investment benefits.

There are anti-avoidance clauses in taxation. So, China tax rate for foreign company facilitates China to better manage foreign companies. Foreign companies can also develop better in China.

Tax rate

The taxpayer’s establishment of production and business institutions and premises in China holds profits. China levies a 30% corporate income tax. In addition, China levies local income tax at a proportional tax rate of 3%.

In addition, foreign-invested companies have income from outside China. They pay taxes according to Chinese tax laws. But China allow s them to deduct their overseas tax payments from their tax payable.

Some foreign companies do not have establishments or places in China. However, these companies have profits, interest, rent, royalties and other income derived from China. Such foreign companies should pay 20% income tax.

Discount for tax rate

  1. New production-oriented foreign companies, and its operating period is more than 10 years. For this situation, in the first and second years, China does not collect its income tax. Meanwhile, in the third to fifth years, China levied its income tax by half.
  2. Foreign companies are engaged in agriculture, forestry and animal husbandry. And they are in remote areas with underdeveloped economy. In this case, from the sixth to the tenth year, China will continue to reduce corporate income tax by 15% to 30%.
  3. Foreign-invested enterprises invest in energy and transportation industries.
  4. Foreign companies have profits in China. It reinvests this profit. And china refunds 40% of the investment tax.
  5. Foreign investors reinvest in China. It is to establish or expand product export enterprises. Or it is a advanced technology enterprise. And foreign investors will directly reinvest the profits from enterprises in the Hainan Special Economic Zone in the Hainan Special Economic Zone. These investment projects are infrastructure construction projects and agricultural development enterprises. At this time, the operating period of the foreign company is not less than 5 years. Then, China will refund all the reinvested tax.
  6. In addition, foreign investors will directly reinvest the profits obtained from enterprises in the Hainan Special Economic Zone in the Hainan Special Economic Zone. And these investment projects are infrastructure construction projects and agricultural development enterprises. At this time, the operating period of the foreign company is not less than 5 years. Then, China will refund all the reinvested tax.
  7. However, it is an enterprise reinvested and expanded by foreign investors. And it as not reached the export enterprise standards within 3 years from the start of production and operation. Or it does not meet the advanced technology enterprises. Foreign companies have to pay back 60% of the tax refund.

How to plan tax legally and reasonably

Tax expert advice:

  • Enterprises that increase-capital should pay attention to tax incentives
  • Increase-capital enterprises should pay attention to tax incentives.

What is tax planning

Taxpayers comply with tax laws. Meanwhile, foreign companies plan and arrange business, investment, and financial activities in advance. Thus, foreign companies choose the best taxation plan.

In this way, foreign companies achieve the best tax burden in order to maximize profits.

In addition, tax planning is not about tax evasion.

It uses legal means to reduce the tax burden.

Therefore, foreign companies must consider both the time value of money and the marginal tax rate.

However, sometimes foreign companies will consider the overall and long-term interests of the company, and choose a plan with a higher tax burden.

How to plan

Pay attention to transnational business strategy and management model

When foreign companies make tax planning, they must first consider coordination with overseas headquarters’ global business strategy and management.

Foreign companies are in the stage of selling overseas products and seizing the market. So, it must consider tariff and value-added tax planning.

In addition, foreign companies are in the stage of strengthening after-sales services and the transfer of franchise rights. And it is about planning mixed sales of goods and services. In addition, it must plan the withholding income tax for the transfer of concession rights and the business tax for the transfer of intangible assets.

Also, foreign companies are in the stage of developing to production, or in the stage of managing and establishing regional centres. At this time, it must plan preferential policies for corporate income tax and the plan with the lightest overall tax burden.

Consider the form and function of corporate organization

As we all known, the legal status of foreign-invested enterprises and foreign enterprises are different in China. Therefore, their tax responsibilities are also different.

  1. Foreign-invested enterprises have unlimited tax liability in my country. And foreign enterprises have limited tax liability in my country.
  2. Not only that, but the regulations of the competent departments of foreign trade, industry and commerce, and special industries should be taken into consideration when tax planning. In this way, foreign companies can reduce risks in national management. Thus, it guarantees that the tax planning plan is in compliance with the law and in compliance with the regulations.
  3. China’s tax collection method is simple to calculate, and the tax burden is determined. Therefore, the tax planning of foreign companies can only be carried out in terms of expenditures.

Understand the current status of China’s tax system

The taxation systems of different countries are different. The signing of tax treaties is also different.

  1. Foreign companies in my country are engaged in production, investment, distribution, and product import and export. So, they must consider the coordination and cooperation of the advance pricing law signed with overseas headquarters. Otherwise, tax planning will affect the company’s global tax plan. Therefore, foreign companies in China will be subject to unnecessary tax adjustments.
  2. Tax planning for foreign companies. This is, it should be combined with China’s current tax system. There are also some specific local policies in China.
  3. Export tax rebates are great tax incentives for enterprises. The total amount of domestically purchased raw materials should be increased. This can increase the tax refund amount. However, my country’s actual export tax rebate takes a long time. Therefore, companies must calculate the time when the tax refund is due. Fully consider the time cost of tax planning.
  4. In addition, in some special economic regions of our country, China has refunded, or reduced and exempted the taxes.

Analyse financial managers

Generally speaking, foreign companies use a set of globally integrated financial computerized software. It can take into account the special tax requirements of some countries.

However, there are differences between this system and tax collection and management requirements. Therefore, in order to complete the company’s tax planning goals, computer-aided software must comply with my country’s tax laws. And regulations must be prepared. Some needs to do manual adjustment and remittance work.

In this case, foreign companies must consider the efficiency and cost of personnel in tax planning. Otherwise, even if a foreign company spends a lot of money on personnel, it will not achieve the planned effect in the implementation.

How to save unnecessary expenses

The first thing we need to tell everyone is reasonable tax savings. And they are not tax evasion. It is to reduce tax pressure within a legal scope. At the same time, it avoids companies pay more taxes or receive fines, because of the blind spots of taxation knowledge.

Therefore, it is necessary for enterprises to understand the basic knowledge of reasonable tax saving.

Here are three common methods:

Preferential policies for small businesses

  • The monthly invoice amount does not exceed 30,000. And China exempt from VAT and surcharges
  • The monthly invoice amount does not exceed 100,000, And it is free of education fees and local education surcharges.
    From January 1, 2015 to December 31, 2017, the annual taxable income of small businesses was less than 300,000 yuan. China reduced its taxes by 50%. And it pays corporate income tax at a rate of 20%

Preferential policies for high-tech enterprises

A company’s R&D expenses can be deducted before corporate income tax at 175%.
Foreign companies apply to become “high-tech enterprises”. Then, it can pay 10% less corporate income tax and pay 15% of profits. Therefore, experts recommend that qualified enterprises apply for high-tech enterprises as soon as possible and enjoy policy benefits easily.

Conclusion

So, we talked about the tax rate for foreign companies in China today. And the article covers the following things:

  • Who needs to pay for the tax? Generally, every company in China will have to pay for tax. And the foreign companies in China as well. But there are discounts for companies meeting specific conditions.
  • The income tax rate for foreign companies.
  • How to make a legal tax plan and avoid paying unnecessary tax.
  • Ways to save unnecessary expenses besides tax payments.

If you care about your business in China and want to run it well, this article worth your attention.

Feel free to share it out anytime if you like it. And keep your eyes on our latest posts. You will find more solid tips on foreign companies in China.

Contact US

  • Call us: (+86)186 6503 0152
  • Room 1713 Wuyangxincheng Square, No. 111-115, Siyouxin Road, Yuexiu District, GZ, China