WFOE China Tax | How Much Do You Know About It?

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Introduction

If you are going to set up a wholly foreign owned enterprise (WFOE) in China. The WFOE China tax is the thing you need to pay attention to.

So, in this article, we’re going to cover several aspects. That includes China tax policy, the types of tax you need to pay, Chinese import tax for imported goods. And the Chinese tax return helping you save more money from taxation.

WFOE China tax #1: The major types of tax you need to pay

On January 1, 2020, the foreign investment law will come into effect in China. This means that the gap between foreign-funded enterprises and local enterprises is gradually narrowing. Moreover, the tax policies of foreign companies are basically the same as those of Chinese enterprises.

However, different companies and different businesses have different tax details. This will be affected by the applicable taxes and rates depending on the size of the business, industry and product/service category, etc.

China’s tax policy is also in continuous improvement.

There are now 18 kinds of taxes in China.

Among the various types, there are the following types.

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.

More into the WFOE China taxes

VAT (value-added tax)

Taxpayers: The enterprise or persons selling goods or providing processing, repair and installation services. Or persons or enterprises selling labour services, intangible assets, real estate or import goods into China. Then, VAT taxpayers include general taxpayers and small-scale taxpayers. This is by the size of the business scale and accounting standard.

Subjects/base of taxation: Sales of the following items:

  • labour services
  • real estate
  • intangible assets
  • transportation industry
  • 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: The VAT tax rates can be 13%, 9%, 6%, 5% or 3% by business scale and product/service categories.

Vehicle Purchase Tax

Taxpayers: You will need to pay a vehicle purchase tax if you buy a taxable vehicle in China.

Subjects/base of taxation:

For items purchased in China as listed below:

  • automobiles
  • motorcycles
  • trams
  • trailers and agricultural transport vehicles

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 Duties

Taxpayers: The consignor of the following 2 items: imported goods and exported goods. Or the owner of the imported articles.

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

Tax rates: levy ad valorem tax or levy unit tax according to the products.

Enterprise Income Tax

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

Subjects/base of taxation: The profit of the enterprises.

Tax rates: 25% for resident enterprises and 20% for non-resident enterprises.

Individual Income Tax

Resident Taxpayers: Have a residence in China, or persons who lived in China for 183 days or more.

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

Non-resident taxpayers: No residence in China, or lived in China for over 183 days.

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.

Urban and Township Land Use Tax

Taxpayers: Enterprise or persons using land in the following places: cities, counties, administrative towns, industrial and mining areas.

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

Tax rates: The tax rate is different in different situations as below:

  • 5-30 yuan per square meter in big cities.
  • 2-24 yuan per square meter in medium-sized cities.
  • 9-18 yuan per square meter in small cities.
  • 6-12 yuan per square meter in counties, towns and industrial and mining areas.

Environmental Protection Tax

Taxpayers: The business activities that have caused environmental pollution or damage. Typically, activities of producers and operators with the pollution industry. Or their business activities have high energy consumption and high consumables.

Subjects/base of taxation: Air pollutants, water pollutants, solid waste, noise pollution, nuclear pollution and so on.

Tax rates: The tax rate of Environmental Protection Tax is case by case. Therefore, no fixed tax rate for an environmental protection tax.

Find more on china tax rate for foreign company.

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WFOE China tax #2: Tax preferential policy in China

To help enterprises in China release their tax burden, the Chinese government never stint on its effort. The bunch of preferable tax policies all these years remain the evidence.

Preference for VAT

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

Due to the outbreak and spread of the new coronavirus, the Chinese government has extended the preferential policy of VAT rate until the end of 2020.

More favourable policies by the Chinese government

The Chinese government has introduced preferential tax policies for goods and services related to the popularity of COVID-19.

For example, the government does not impose a value-added tax on enterprises providing public services such as public transport services, living services and postal services.

The government has implemented a series of tax reduction and exemption policies for individual businesses that donate epidemic prevention supplies free of charge.

And it will reduce part of the tax on manufacturing enterprises that purchase and expand production due to epidemic diseases and so on.

Find more about the preferable tax policy for VAT on China Vat Tax Rate 2020.

Preference for import tax

Tax preferences for imported equipment for self-use

If the company imports self-use equipment that meets the requirements, the government will not impose tariffs on it.

Besides, if the enterprise is located in a specific area of China, it can enjoy preferential tax policies in a specific area.

Tax preferences on some other goods

At present, China has implemented provisional import tax rates on more than 850 kinds of commodities. Sometimes the MFN rate is even higher than the provisional import rate.

What’s more, to encourage the development of high-tech industry and the biopharmaceutical industry. China has implemented different degrees of preferential import tax policies on these industries.

The cancellation of tariff increase

China has abolished the tariff on the United States and implemented market-oriented procurement of goods.

This means that enterprises cannot apply additional countervailing duty to the United States for eligible imported goods imported from the United States.

Find more about Chinese Import Tax.

WFOE China tax #3: Chinese import tax to pay for imported goods

What is the Chinese import tax?

We will begin with the introduction of Chinese import tax first. If you have already known it, you can choose to skip this part.

Before we learn about it, we need to know what tax is and what tariff is.

There are 18 kinds of taxes in China. Among them, two kinds of taxes are levied by the Chinese customs, namely tariff and tonnage tax.

A tariff is a kind of high-level tax which is designated by the highest administrative unit of a country. For a country with developed foreign trade, such as China, the tariff is often the main part of the country’s national finance. The government can impose tariffs on both import and export commodities, and import tax is the most important.

That is, the Chinese import tax is one kind of tariffs.

And it is imposed by the Chinese customs on imported goods. It is mandatory. As every country no longer uses transit tariff nowadays, and also, export tax is rarely used, the tariff we call today mainly refers to the import tax.

The subject of the tax is goods allowed to be imported into China, and articles entering China.

Why and what do I need to know about import tax?

If you import your goods into China, then China’s import tax will definitely increase your cost. Therefore, how to deal with the import tax is very important to your trade.

On the other hand, it will reduce your cost and make your goods more competitive with an import tax plan.

Articles not subject to Chinese import tax

In general, 11 kinds of goods require no customs duty according to Chinese law.

  1. gifts offered by foreign organizations and individuals,
  2. goods listed in the import and export tariff rules as duty-free goods,
  3. materials for disaster relief,
  4. equipment for the disabled and for welfare factories where the disabled work,
  5. goods and materials donated by foreign governments and international organizations,
  6. imported goods that are damaged and granted tax exemption,
  7. official articles enjoying diplomatic privileges,
  8. goods that haven’t been processed after import and transported for reexport within 90 days,
  9. military orders granted duty-free import
  10. temporarily imported goods,
  11. other goods subject to tax reduction or exemption and bonded.

From this, we can see that almost all goods imported into China need to pay taxes.

How to calculate the Chinese import tax?

At present, there are two ways to measure tariff in China: AD Valorem tariff and quantitative tariff.

The government collects taxes according to the customs value of imported goods. This is ad valorem. The tariff you have to pay is equal to the price tax rate multiplied by the Ad Valorem tax payable.

Then, the way that the government collects taxes according to the number of imported goods is quantity collection. The tariff is equal to the quantity of the imported goods multiplied by the tax rate calculated by the quantity.

There are other methods of Chinese import tax collection, such as compound collection.

Heading

Content

WFOE China tax #4: Get more from the Chinese tax return

WFOE China tax return

To increase the competitiveness of China’s export commodities, the Chinese government has set up a tax return policy.

The export tax return is a common international practice. If the government levies the tax when exporting, it also needs to pay the import tax of that country when the goods are exported to other countries.

Then, this will lead to higher prices of goods and make them less competitive.

Therefore, the export tax return can make the overall tax burden of export goods return to zero, and effectively avoid international double taxation.

Also read about Chinese Tax Return.

Conclusion

In this article, we talked about some related contents about foreign-funded enterprises paying taxes in China.

If you find this article useful, don’t forget to share it with more people. And keep up with the latest articles. You will learn more about foreign enterprises paying taxes in China.

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