China income tax rates 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%
* Monthly taxable income = salaries/wages/allowances – fixed monthly deduction.
* Monthly tax payable = [(taxable income × tax rate) – quick calculation deduction].
* Personal fixed monthly deduction to individual Chinese taxpayer is Rmb 2,000 (Rmb 1,600 before 1 March 2008).
* Those taxpayers who are not domiciled in China but derive wages and salaries from sources in China are entitled to a total statutory deduction of Rmb 4,800 per month.
Net income derived from production and business operations by industrial or commercial households (i.e. annual gross income less business costs, expenses and losses) shall be taxable at the following rates:
Annual taxable income (Rmb) Tax rate (%)
0 – 5,000 5
5,001 – 10,000 10
10,001 – 30,000 20
30,001 – 50,000 30
50,001 or above 35
OTHER TAXABLE INCOME FOR IIT PURPOSE
(a) Net income derived from royalties, remuneration for labour services or manuscripts, and income from letting property. That is:
(i) Where the income from a single payment does not exceed Rmb 4,000
(ii) Net income = Gross income – Rmb 800
(iii) Where the income from a single payment exceeds Rmb 4,000
(iv) Net income = Gross income × 80%.
(b) Net income derived from the assignment of property (i.e. the gain from assignment less the original value of the property and reasonable expenses).
(c) Gross income derived from interest, dividends and bonuses, or contingency income and other income. Such income is taxed at a flat rate of 20%.
Basis – A resident individual, i.e. an individual "domiciled" in the Chinese Mainland, is subject to individual income tax on his/her worldwide income. Most nonresidents or residents of less than 1 year are subject to personal tax only on income sourced in China. Non-domiciled individuals staying in China for more than 1 year but less than 5 consecutive full tax years are subject to individual income tax on Chinasource income, plus foreign income actually borne by Chinese entities or establishments.
Non-domiciled individuals staying in China for more than 5 consecutive full tax years are taxed on worldwide income.
Residence – The test for residence in China is whether an individual is usually or habitually residing in China due to household, family or economic involvement.
Filing status – Each individual must file a separate return; joint filing is not permitted.
All individuals, except for PRC nationals, generally must register with the Chinese tax authorities as soon as they become liable to individual income tax.
Taxable income – Taxable income comprises employment income; production and business income; income derived from contracting for, or leasing operations of, enterprises or institutions; dividends and bonuses; interest income (except interest from bank deposits); royalty income; income from leasing property; income from the assignment or transfer of property; contingency income; unemployment insurance premiums paid by an enterprise in excess of the premium rates specified by law; and other income specified as taxable by the finance department of the State Council.
Capital gains – Gains derived from the sale of property, net of relevant expenses and taxes, are subject to tax at a rate of 20%. Gains on the sale of real property are also subject to Land Value Added Tax. Individuals are generally exempt from tax on gains from the sale of their sole private dwelling if they have occupied the residence for 5 years. Income from currency trading (i.e. the purchase and sale) over the internet is subject to a 20% tax.
Deductions and allowances – Deductions and allowances are available depending on the category of income. For wages and salaries received in the PRC, individuals are entitled to a fixed monthly deduction of RMB 2,000 (foreign nationals are entitled to an additional fixed deduction of RMB 2,800).
Personal basic contributions are deductible for domestic individuals. These include payments to housing funds and certain medical insurance, pension and unemployment insurance payments.
Tax Rates – Nine progressive tax rates ranging between 5% and 45% are levied on wages and salaries. Dividends, royalties, income from leasing property, income from the transfer or assignment of property, income from manuscripts and contingency income are taxed at 20%. Interest on bank deposits is temporarily exempt from individual income tax (previously taxed at 5%). Income from personal services is subject to progressive rates up to 40%.
Stamp duty – Stamp duty at varying rates applies to contracts, agreements and certain documents.
Capital acquisitions tax – No
Real property tax – An individual who rents out his/her own property is subject to urban real estate property tax. The rates vary across China since they are determined by the local authorities.
Inheritance/estate tax – No
Net wealth/net worth tax – No
Tax year – Calendar year
Filing and payment – Individual income tax on wages and salaries is calculated and levied on a monthly basis. Withholding agents and individuals who lodge returns personally must submit tax a return to the tax authorities and make their tax payments to the State Treasury within 7 days after the end of the month in which the income was derived.
Annual filing is required within 3 months of the end of the tax year for individuals who have resided in the PRC for a full tax year and whose annual income exceeds RMB 120,000.
In most cases, an employer or a person who pays taxable income to a taxpayer is obliged to act as a withholding agent and is responsible for filing a tax return and remitting tax payments to the tax authorities on behalf of the individual taxpayer. If there is no withholding agent, the individual is responsible for filing his/her tax return and paying the tax assessed.
Tax Penalties – A late payment surcharge will be imposed on a daily basis at the rate of 0.05% of the amount of underpaid tax. Further penalties may be imposed in addition to the late payment surcharge.
The 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.
FEDERAL TAXES AND LEVIES
ENTERPRISE INCOME TAX (EIT)
The passage of the Unified Corporate Income Tax Law ('the New Law') on 16 March 2007 unified the income tax rate for domestic enterprises and foreign invested enterprises (FIEs) and streamlined tax incentives effective from 1 January 2008. All FIEs (i.e. sino-foreign joint ventures and wholly owned foreign enterprises) and foreign enterprises (FEs) with or without establishments in China are now taxed at the same as domestic enterprises. Enterprise Income Tax is charged at the rate 25% on taxable profits in a calendar year.
Subject to a preferential tax rate of 20% for qualified enterprises with small profits, both domestic companies and foreign invested enterprises will be assessed at a unified tax rate of 25%. All FIEs (and those foreign enterprises having their head offices in China) are subject to Enterprise Income Tax on their worldwide profits. Foreign enterprises which have their permanent establishments (PEs) in China are subject to Enterprise Income Tax on profits derived from the permanent establishments. Foreign enterprises without any permanent establishment in China are subject to Enterprise Income Tax on China-source income only.
The New Law introduces a wider concept of management in determining tax residency. A company will be recognised as a China tax resident if it is incorporated in China or its place of effective control and management is in China. The tax year in China is the calendar year (i.e. year ended 31 December).
BRANCH PROFITS TAX
There is no separate branch income tax.
CAPITAL GAINS TAX
There is no separate tax levied on capital gains. Capital gains are subject to Enterprise Income Tax as ordinary income. In addition to EIT, any gain realised on the transfer of immovable properties or land use rights is subject to land value appreciation tax.
LAND VALUE APPRECIATION TAX (LVAT)
Land Value Appreciation Tax applies to domestic enterprises, FIEs, FEs and individuals realising gains from the transfer of land use rights, buildings and premises and attached structure.
Land Value Appreciation Tax is charged at progressive rates ranging from 30% to 60% on the 'land value appreciated amount' from sales or transfer of land use rights, buildings or other structures. Under the Chinese constitution, land is publicly owned and cannot be transferred. However, it is possible to transfer the right to use land. Gifts and inheritances are exempted from LVAT.
VALUE ADDED TAX (VAT)
VAT is levied on the invoiced amount in respect of selling, transferring or importing of commodities, provision of repairs and processing services in China. The basic tax rate of VAT is 17% for most of the taxable goods. A reduced tax rate of 13% is available for specified goods that are mainly agricultural and utility items.
Taxpayers engaged in small scale business are subject to VAT at a special rate of 3%. A small scale business is broadly defined as one with an annual turnover of less than Rmb 0.5m or a retailer or wholesaler whose annual turnover does not exceed Rmb 0.8m. However, businesses taxed at these rates are not entitled to claim any input Value Added Tax paid to set-off against the output VAT. Generally, export goods are exempt from Value Added Tax. Commodities sellers, service providers and importers are the tax collection agents.
BUSINESS TAX (BT)
Business Tax ranging from 3% to 20% is imposed on various service income (e.g. communication and transportation, construction, financial and insurance, post and telecommunications, culture and sports, entertainment, service etc.) and on sales proceeds from the transfer of intangible assets and immovable properties.
Business tax is generally levied on gross turnover and no tax credit is allowed for taxes paid on business inputs.
CONSUMPTION TAX (CT)
Consumption Tax is imposed on 14 categories of consumable or luxury goods (e.g. cigarettes, alcohol, petrol and motor vehicles etc). Consumption Tax rates range from 1% to 45%. Certain products are taxed at a fixed amount based on quantity. The collection of this tax has been shifted to the retailer and is levied by the tax authorities of the retailer's site.
FRINGE BENEFITS TAX
No separate fringe benefits tax is levied in China.
URBAN REAL ESTATE TAX (URET)
Urban Real Estate Tax is imposed on owners, users or custodians of houses and buildings. Urban Real Estate Tax is imposed at a flat rate of 12% on annual rental income of the leased property or at the rate of 1.2% on the purchase cost of self-used property. A discount of 10% to 30% on the purchase cost is often offered by some local governments in determining the Urban Real Estate Tax. The tax only applies to FIEs, FEs and foreign individuals.
SOCIAL INSURANCE CONTRIBUTIONS
FIEs are required to pay five types of labour insurance (i.e. old-age, medical, unemployment, work-related injury and child bearing) every month on behalf of their employees in China.
STAMP TAX (ST)
Stamp Tax is levied on various contracts including purchase and sale contracts, property leasing, loan contracts, documents for the transfer of property rights, engineering and design contracts, construction and installation, commodity transportation, storage, property insurance contracts, etc. Tax rates range from 0.005% to 0.1%. A fixed amount of Rmb 5 is charged on certificates evidencing rights and licenses.
DEED TAX (DT)
Deed Tax is imposed on the transferee or assignee to which land use rights or building ownership rights are transferred (sales, exchange or gifts). The tax rate ranges from 3% to 5% depending on the location of the property.
TECHNOLOGICALLY ADVANCED ENTERPRISES (TAE)
A TAE with an operating period of not less than ten years and located in a Hi-Tech Industry Development Zone designated by the State Council may apply for two years' full exemption on EIT starting from the first profit-making year.
A FIE which remains as a TAE upon the expiration of the normal tax holiday as described above can further enjoy (subject to approval) the half EIT rate for the next three years. The minimum reduced tax rate is 10%.
The New Law repeals the extended three-year tax rate reduction. The remaining holiday will be grandfathered.
Sino-foreign joint ventures engaged in harbour or wharf construction with an operating period of not less than 15 years may apply for five years' tax exemption, starting with the first profit-making year, and a half Enterprise Income Tax rate in the next five years.
Both domestic enterprises and FIEs will continue to be eligible for the above tax incentive under the New Law.
Financial institutions with foreign investment exceeding US$10 million and an operating period of not less than ten years located in SEZs or other districts approved by the State Council are eligible for a one-year tax exemption (starting with the first profit-making year) and a half Enterprise Income Tax rate in the next two years. Both domestic enterprises and FIEs will continue to be eligible for the above tax incentive under the New Law.
CENTRAL AND WESTERN REGIONS
FIEs located in central and western parts of China performing certain types of business as listed in the Industrial Catalogue for Guidance of Foreign Investment enjoy a preferential EIT rate of 15% for a further three years after the expiration of any existing tax incentives. TAE and EOE in the region may enjoy a further reduction of Enterprise Income Tax by 50% (subject to a minimum tax rate of 10%). As the Chinese 'Go West' strategy continues, different provinces, autonomous regions and municipalities in the regions will from time to time announce their own preferential measures in light of their local conditions to attract foreign investments.
Both domestic enterprises and FIEs will continue to be eligible for the above tax incentive under the New Law.
CONCESSIONARY TAX RATES
Reduced State Enterprise Income Tax rates of 15% to 24% were available to FIEs located in specific designated areas and/or engaged in specific operations.
Under the New Law, the unified tax rate of 25% is gradually phased in with a fiveyear transitional period.
Dividends – A 10% withholding tax is imposed on dividends paid to a nonresident company unless the rate is reduced under a tax treaty.
Interest – A 10% withholding tax applies to interest paid to nonresidents unless the rate is reduced under a tax treaty. A 5% business tax also may be imposed.
Royalties – A 10% withholding tax applies to royalties paid to a nonresident unless the rate is reduced under a tax treaty. A 5% business tax is also applicable, but may be waived when royalties are paid for the transfer of technology.
Branch remittance tax – No
Rates - The VAT standard rate is 17%, with a lower rate of 13% applying to certain foods, goods, books and utilities. As from 1 January 2010, a 3% rate applies under the smallscale taxpayer scheme (reduced from 6% or 4%). Lower rates apply to certain transactions involving used goods. Exports are generally zero-rated. As from 1 January 2009, input VAT incurred on the purchase/construction of fixed assets may be credited against output VAT.
Registration – A company is required to register with the local tax authorities at the time of incorporation to have its status recognised. If the taxpayer's status is approved, VAT taxpayers (other than small-scale VAT taxpayers) must register for VAT purposes with the tax authorities. A non-Chinese resident company is not allowed to register for VAT.
Filing and payment – VAT returns must be filed each calendar month and submitted before the 15th of the following month Taxpayers importing goods must pay tax within 15 days after the issuance of the tax payment certificate by Customs.
Other – China imposes 2 other notable indirect taxes: the Business Tax and the Consumption Tax. The Business Tax is a non-recoverable turnover tax imposed on the provision of certain services, the assignment of intangible assets and the sale of immovable property within China. Tax Rates are 3%-5% withheld at source for most services, although a 20% rate applies to entertainment.
Once the taxpayer's tax status has been approved by the tax authorities, the company should register as a Business Tax payer.
Returns must be filed each calendar month and submitted before the 15th of the following month.
The Consumption Tax applies to alcohol, cosmetics, diesel fuel, fireworks, jewellery, motorcycles, motor vehicles, petrol, luxury watches, tobacco, tires, golf equipment, yachts, etc., at rates ranging from 3%-45% of the value of the goods. Once the taxpayer's tax status has been approved by the tax authorities, the vendor should register as a Consumption Tax payer. Returns must be filed each calendar month and submitted before the 15th of the following month.
Income Tax Rate
Corporate Tax Rate
Sales Tax / VAT Rate
Last Update: Nov 2010
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