China taxation Service
Hotline: 86-755-82143348 Email: anitayao@citilinkia.com
The Tax System in China has undergone tremendous changes in 2012. Investors should always check out for the latest development in those laws and regulations and consult experienced professionals before deciding on their investment plans.The foreigners doing business in China need to have a good knowledge of China taxation.
Overview of China taxation
Foreign invested enterprises and foreign enterprises doing business in China are liable to the following types of taxes: Value Added Tax, Consumption tax, Business tax, Enterprise Income Tax, individual income tax, City Maintenance and Construction Tax, Consumption tax (CT), Customs Duties.
The Tax System in China has undergone tremendous changes in 2012. The critical reform from Business Tax (BT) to Valued Added Tax (VAT) is being implemented to stimulate the economy. The statistics show that the pilot enterprises and the general VAT taxpayers in Shanghai witness an overall decrease of RMB 4.45 billion in tax burden for the first half of the year, since the business tax is replaced by value added tax. After the success of Shanghai pilot, the reform will be extended to the other 11 provinces and cities.
Major taxes on foreign enterprises in China
1. Value added tax (VAT)
Enterprises engage in the business of selling commodities, repair and maintenance services or import and export business in China are subject to value added tax. The standard rate for value added tax is 17%, but the rate for certain basic commodities such as grain, cooking oil, running water, forage, fertilizer, pesticide, and farming machinery is 13%.
The critical reform from Business Tax (BT) to Valued Added Tax (VAT) is being implemented in 12 pilot cities and provinces. Based on the 17% current tax rate and the 13% low tax rate, 6% and 11% tax rates are added during the pilot reform. The rate for transportation and construction industry is 11%, while the rate of other modern service industry is 6%.
2. Business tax (BT)
Enterprises engage in transportation, post and telecommunication, finance and insurance, construction, art, sports, entertainment, and services, or transfer of intangible assets and immovable properties are subject to business tax. Business tax rate is 3% or 5%. But the tax rate for entertainment sector is 10% or 15%.
3、Enterprise Income Tax (EIT)
The Enterprise Income Tax is computed on the basis of the taxable income which is equal to the total income earned by the taxpayers in a tax year less allowable deductions for the same tax year.
4、Individual Income Tax (IIT)
There are 7 categories of taxable income according to the IIT Law, including wages and salaries, business income and various other specified items of income and compensation.
5、City Maintenance and Construction Tax (CMCT)
The enterprises of any nature, units, individual household businesses and other individuals (excluding enterprises with foreign investment, foreign enterprises and foreigners) who are obliged to pay Value Added Tax, consumption Tax and/or Business Tax are the taxpayers of City Maintenance and Construction Tax.
6. Consumption tax (CT)
Consumption tax is levied on units and individuals engaged in the manufacturing, processing and importation of specific non-essential or luxury goods, such as tobacco, alcohol, cosmetics, jewellery and automobiles.
7、Customs Duties
The payers of Customs Duties include consignees who import goods permitted by China and consignors who export goods permitted by China, the former shall pay import duties and the latter shall pay export duties.
China’s VAT reform is major and although not all businesses may be in favor of it, it presents potential tax savings and other opportunities. The companies need to ensure they are adequately prepared for the full transition from Business Tax (BT) to VAT. Keeping place with compliance obligations in such a rapidly changing regulatory environment can be a major challenge. You are advised to seek professional advice regarding your particular circumstances.
Contact us
ATAHK, with a team of more than 160 professionals, will give China investors professional advice of tax planning, tax filing and so on. For further queries, please do not hesitate to contact ATAHK at anytime, anywhere by simply calling China hotline at 86-755-82143422, 86-755-82143512, or emailing to anitayao@citilinkia.com.