| China Income Tax China income tax rates for 2009 are progressively between 5% - 45%, shared out on 9 brackets:
Taxable Income / Tax Rate %
CNY 0-500 5%
CNY 501-2,000 10%
CNY 2,001-5,000 15%
CNY 5,001-20,000 20%
CNY 20,001-40,000 25%
CNY 40,001-60,000 30%
CNY 60,001-80,000 35%
CNY 80,001-100,000 40%
Above CNY 100,000 45%
Personal income tax in China is levied on both Chinese and foreigners, and tax is imposed on private business income. Expatriate employees of FIEs, resident representatives of foreign businesses and other individuals who hold resident permits normally need to register with the tax authorities upon entering China. Tax year in China is the calendar year, but individual income tax returns must be filed on a monthly basis.
China residents are subject to individual income tax on their worldwide income, whereas nonresidents are subject to tax depending on the source of income.
Individuals in China are taxed on specific types of income like employment income, business income and investment income, at different rates of tax. The tax rates can be progressive or flat tax rates.
Wage and salary income is subject to tax at progressive rates, ranging from 5% to 45%. The same progressive tax rate schedule applies to both Chinese citizens and foreigners except for a differential in basic monthly exemptions, with a standard monthly tax deduction of CNY 2,000 for local citizens and CNY 4,800 for expatriates and certain nationals.
A separate tax schedule applies to income from the operation of a private business, including on a contractual or lease basis. For a private business, taxable income is defined as total revenue net of costs, expenses and loss incurred. For a business operated on a contractual or lease basis, taxable income is the total revenue net of necessary expenses. Progressive tax rates apply to such income:
5% on the first CNY 5,000
10% on the next CNY 5,000
20% on the next CNY 20,000
30% on the next CNY 20,000
35% on income exceeding CNY 50,000
Personal services income is subject to tax at progressive rates ranging between 20% - 40%. A flat 20% tax applies to certain income such as dividends, interest (except the interest from bank deposits), and royalties, etc. However, taxable income from personal services, royalties or the leasing of property is net of a standard deduction for expenses that is 20% of total income with a minimum amount of CNY 800 per payment. Dividends arising from a joint venture or co-operative organisation are tax exempt for expatriates.
A flat 5% tax applies to interest income derived by individuals from bank deposits.
Capital Taxes: Individuals in China are subject to tax on the transfer of property, including shares and land use rights among others, and to tax on capital gains on land after deducting development costs at an applicable rate of 20%.
Net gains derived by foreign nationals from the transfer of B shares or shares in a Chinese enterprise listed overseas are provisionally exempt from the 20% income tax.
China Corporate TaxThe standard corporate income tax rate in China is 25%.
A special tax rate of 20% applies to small-scale enterprises, also a special 15% tax rate applies to state-encouraged new high-technology enterprises.
The new enterprise income tax law of China is effective from 1 January 2008, and it replaced the dual corporate income tax system - one for enterprises owned by domestic investors (business entities with less than 25% foreign investment) and the other for foreign investors (business entities with at least 25% foreign investment).
The new tax law of China provides a 25% statutory tax rate, which applies to both domestic and foreign funded enterprises and, subject to transition relief, enterprises that have enjoyed preferential treatment. Also included in the new tax law of China are international taxation concepts wholly or partly new to China, such as the determination of residence under the "managed or controlled" concept; controlled foreign corporations; cost sharing agreements; thin capitalization; and deemed paid foreign tax credits. The new tax law of China also strengthens transfer pricing administration and introduces a general anti-avoidance rule that allows Chinese tax authorities to make adjustments when an enterprise has entered into an arrangement that reduces taxable revenue or income and has no commercial purpose.
In addition to the enterprise income tax, enterprises in China may be subject to business tax, value added tax, consumption tax, land appreciation tax, customs duties and stamp duty. Employers in China are required to withhold individual income tax on behalf of their employees. There is no excess profits tax or alternative minimum tax.
Tax legislation and policy in China are developed jointly by the State Administration of Taxation and the Ministry of Finance, with the State Administration of Taxation and its provincial and municipal offices administering taxation policies. Each locality in China has a state tax bureau under the State Administration of Taxation and a local tax bureau under the local government.
Taxable Income and Tax Rates: Resident enterprises are taxed on their worldwide income, nonresident enterprises are taxed on Chinese source income and effectively connected income. Under Chinese tax reform effective 1 January 2008, a company is deemed to be resident in China if it is established in China or if its effective management is in China. The normal corporate income tax rate in China is 25%.
Capital Gains Taxation: There is no separate capital gains tax in China. Capital gains and losses of companies in China are generally combined with other operating income and taxed at the normal corporate income tax rate. Gains on real property net of development costs are subject to the land appreciation tax.
Withholding Tax on Dividends: A 10% withholding tax on dividends paid to nonresident companies was instituted from 2008. Previously, dividends paid by a Chinese company with at least 25% foreign participation were exempt. It should be noted, however, that dividends paid out of pre-2008 earnings continue to be exempt from withholding tax. The 10% withholding tax rate may be reduced under an applicable tax treaty.
Withholding Tax on Interest: Interest is generally subject to a 10% withholding tax unless the tax rate is reduced under a tax treaty. Interest from certain loans made to the Chinese government or state banks is tax exempt. A 5% business tax also applies to interest payments.
Withholding Tax on Royalties and Fees: Chinese withholding tax rate on royalties arising from the licensing of trademarks, copyrights, know-how and technical service fees is generally 10%. Royalties generally are subject to a 5% business tax except for payments made in connection with the use of technology.
Tax on Foreign Income and Tax Treaties: Foreign tax paid may be credited against Chinese tax on the same profits, but the tax credit is limited to the amount of China tax payable on foreign income. A country-by-country limitation is applied. If the foreign tax credit esceeds the limit, the excess may be carried forward for 5 years. An indirect tax credit is also allowed.
China Tax Year: Tax year in China is the calendar year.
China Business Tax: Business tax applies to the provision of services that are not subject to Value Added Tax, the assigning of intangible assets such as patents, trademarks, copyrights, land use rights and the sale of immovable property within China. The business tax does not cover processing, repair, and replacement services, which are subject to Value Added Tax. The rate of business tax is 3% - 5% for most sectors, except the entertainment business that is taxed at 20%.
China Consumption Tax: A consumption tax of 3% - 45% applies on non-essential and luxury goods, including alcohol, cosmetics, fuel oil, jewelry, motorcycles, motor vehicles, petrol and tobacco. Consumption tax affects mainly companies involved in producing or importing these goods. Exports are tax exempt.
Land Appreciation Tax: Gains on the sale of real property net of development costs are subject to the land appreciation tax in China. The land appreciation tax applies to all types of land, structures, and immovable property, including commercial, industrial and residential sites. The implementing regulations provide for a full deduction of financing expenses and limited deductions for administration and selling expenses. The land appreciation tax rates range from 20% to 60%.
License Tax: China licence tax can apply at the discretion of the local authorities on vehicles and vessels belonging to enterprises and individuals.
Local Taxes in China: A real estate tax is imposed annually on the owner or user of property at a rate of 1.2% of the assessed value or 12% of rentals leased property. Real estate tax applies to Chinese legal entities, including FIE's, and individuals. A local land use tax is levied at varying rates, depending on the size of the city or locale.
Natural Resources Tax in China: The national resources law in China outlines tax rates for enterprises and individuals engaged in exploiting mineral products or producing salt. The tax is payable to the local authorities at the place of production or exploitation.
China Value Added TaxThe standard rate of Value Added Tax in China is 17%.
China imposes Value Added Tax on the sale of goods, the import of certain goods and the provision of certain services. A 13% Value Added Tax rate applies to certain goods, books and utilities. Small enterprises are required to pay a 6% or 4% rate.
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