The following is an overview of the major tax categories, taxpayer classifications, corresponding descriptions and respective taxation rates applicable to resident and non-resident entities and individuals in China:
Major tax categories (overview)
- Corporate income tax (CIT): the standard tax rate is 25%, but that rate could be reduced to 15% for qualified enterprises which are engaged in industries encouraged by the Chinese government (for example, new/high tech enterprises and certain integrated circuits production enterprises). Tax holidays are 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%.
- Value-added tax (VAT): applies to the sale of goods and the provision of most services in China. Current standard rates are: 13% for goods and certain tangible services; 9% for transportation, construction, and basic services; 6% for most modern service industries including consulting, finance, and technology. Small-scale taxpayers apply a simplified rate (currently 3%, subject to periodic relief measures). The pre-2019 17% standard rate and the pre-2016 business tax have both been abolished.
- Consumption tax: applies to 14 categories of consumable goods, including tobacco, alcoholic drinks, cosmetics, jewelry, fireworks, gasoline, diesel oil, tires, motorcycles, automobiles, golf equipment, yachts, luxury watches, disposable chopsticks, and wooden floorboards. The tax is computed based on sales price and/or sales volume.
Corporate tax
- Monthly and quarterly tax compliance and reporting obligations
- Updates on new changes in legislation and policy
- Communication and negotiation with the relevant tax authorities
International tax and cross-border transactions
- Legal entity holding structure planning
- Profit repatriation scheme
- Application of double taxation agreements
Indirect tax (VAT, GST, etc.)
- Tax implications on transactions
- Guidance with issuing and receiving receipts
- Application for indirect tax (for example VAT) exemptions, zero rating for exported services
- Advisory on customs, tariffs, and applicability of free trade agreements
Transfer pricing
- Review of related party contracts/agreements
- Performance of benchmark studies
- Preparation of transfer pricing documentation
Tax equalization
Tax equalization is a compensation strategy used to neutralize the impact of a global assignment on a mobile employee’s personal tax liability. If the tax in the overseas country is greater than the tax liability in the home country, the employer reimburses the excess. If the tax in the overseas country is less than the home country hypothetical tax liability, the employer retains the benefit.
Through our tax advisory services, we are able to run simulation analyses for tax liabilities crossing multiple jurisdictions in order to calculate hypothetical tax exposure in the home country. The analysis can be delivered in the form of a PDF report, which can then be used for both your own reference and employee mobility discussions.
China tax refunds
To attract foreign and domestic investment, the Chinese central government refunds part of the corporate income and value added tax paid by qualified businesses registered in certain parts of China.
But regulation and implementation differs between regions. In some economic zones, besides tax refunds, local investment offices have additional incentives that include rental subsidies, R&D rebates, and establishment incentives.
Our team helps investors to compare and identify suitable regions and enroll them in tax rebate programmes through structured planning and filings.
- Business model analysis
- Local preferential tax scheme comparison
- Preferential tax policy agreement drafting
- Periodic tax refund calculation and collection
Tax incentives in Greater Bay Area and Hainan Free Trade Port
In an effort to attract more investment and talent to the Greater Bay Area and Hainan Free Trade Port, the Chinese central government issued special preferential tax policies for both areas in 2019 and 2020. Qualified companies and individuals can apply for the preferential treatment; however, the application process can vary considerably depending on your location within China.
Greater Bay Area
To support the smooth implementation of the Guangdong–Hong Kong–Macau Greater Bay Area (GBA) plan and attract overseas talents to work in the region, China has rolled out measures to grant preferential tax treatment for experts in certain high-end industries. The Greater Bay Area officially announced that all eligible overseas employees working in the nine cities of the Guangdong province (Guangzhou, Shenzhen, Zhuhai, Foshan, Dongguan, Zhongshan, Jiangmen, Huizhou, and Zhaoqing) can enjoy a preferential tax rate of 15% in line with the Hong Kong individual income tax rate.
Under current policies, overseas talents need to fit the basic definition of “high-end” and “critically lacking” talents to receive preferential treatment. They should be:
- A candidate of the state, provincial, or municipal projects who has obtained a high-level talent card in Guangdong province, a Foreigner’s Work Permit (Class A), or a confirmation letter of a foreign high-end talent, as well as those who possess overseas high-end talents recognized by the state, provincial, and municipal authorities; or
- A scientific and research team member of a major innovation platform of the state, provincial, or municipal level, or of a higher education institution, scientific and research institution, hospitals, or other relevant institutions, or a technical skills base and managerial personnel working or starting out his/her own business in a key industry or a key field within the Guangdong Province, or any other critically lacking talent with special expertise recognized by the nine municipal authorities within the GBA.
Hainan Free Trade Port (HFTP)
- A 15% corporate income tax (CIT) rate (reduced from the statutory 25% rate) for taxpayers engaged in “encouraged” business activities in the HFTP;
- A tax exemption for certain foreign-source income from newly formed foreign branches and new foreign direct investment of taxpayers established in the HFTP in the tourism, modern services, and high and new technology sectors;
- Accelerated tax deductions for eligible capital expenditures by taxpayers established in the HFTP; and
- A 15% effective individual income tax (IIT) rate for qualified talent working in the HFTP.
Discuss your China accounting requirements
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