What Taxes do Foreign-Invested Enterprises Need to Pay in China?

Taxes are definitely a great concern to overseas investors when starting their business in China through our close connection with our foreign clients. If the foreign-invested enterprise don’t pay taxes in accordance with the relevant Chinese tax laws, not only the operation of the enterprise will be challenged, investors themselves may also be at risk. If you have plans to set up an enterprise or you already have company in China, this article can help you better understand the taxes that foreign-invested enterprise need to pay in China.

1.Enterprise Income Tax

Enterprise Income Tax stipulated in the Enterprise Income Tax Law of the People’s Republic of China requests all enterprise that have incomes and within the territory of China to pay.

The formula for calculating the tax amount payable is:

the payable tax amount=(enterprise incomes-costs)*25%

It’s a good news to small meagre-profit enterprises and the enterprises supported by China government that this two kinds of taxpayers may have preferential tax treatments.

2.Individual Income Tax

Individual Income Tax stipulated in the Individual Income Tax Law of the People’s Republic of China requests a resident individual in China or a non-resident individual obtained income inside China to pay.

There are three formulas for calculating the tax amount payable for different types of incomes:

(i) Income from wages and salaries:

the payable tax amount=(Income from wages and salaries-CNY 5000)*progressive tax rates ranging from 3% to 45%

(ii) Business income:

the payable tax amount=(incomes-costs)*progressive tax rates ranging from 5% to 35%

(iii) Income from interest, dividends and bonuses:

the payable tax amount=Income from interest, dividends and bonuses*20%

3.Value Added Tax

Value Added Tax stipulated in the Interim Regulation of the People’s Republic of China on Value Added Tax requests enterprise and/or individuals that sell goods or labor services, services, intangible assets, or immovables, or import goods within China to pay.

Subject to the annual sales that the taxpayer made, the taxpayer have been divided into General Taxpayer and Small-Scale Taxpayer.

Here are respective formulas for calculating the tax amount payable:

(i) General Taxpayer(the sales amount less than CNY 5,000,000 per year):

the payable tax amount=the output tax amount(the sales amount*the tax rate 6%/11%/17%)-the input tax amounts (the VAT amount that a taxpayer pays or bears for purchasing

goods, labor services, services, intangible assets, or immovables)

(ii) Small-Scale Taxpayer(the sales amount less than CNY 5,000,000 per year): the payable tax amount=the sales amount*the tax rate3%

4.Consumption Tax

Consumption Tax stipulated in the Interim Regulation of the People’s Republic of China on Consumption Tax request enterprise and/or individuals that sell, process upon commission or import cigarettes and tobacco, liquor, high-end cosmetics, precious jewelry and jewel and jade, motorcycles, cars to pay.

Also, there are three formulas for calculating the tax amount payable depend on calculating methods:

Tax amount payable calculated through the ad valorem tax method=sales amount*proportional tax rate

Tax amount payable calculated through the specific tax method=sales volume*fixed tax rate

Tax amount payable calculated through the composite method=sales amount*proportional tax rate+sale volume*fixed tax rate

5.Real Estate Tax

Real Estate Tax stipulated in the Interim Regulation of the People’s Republic of China on Real Estate Tax request the owner of the property rights to pay.

Following is the formula for calculating the tax amount payable:

the payable tax amount=the residual following the subtraction of between 10% and 30% of the original value of the property*1.2%

However, for the leased property, the payable tax amount equals to the 12% of the rental income.

6.Land Value-Added Tax

Land Value-added Tax stipulated in the Interim Regulation of the People’s Republic of China on Land Value-added Tax requests enterprise and/or individuals that obtained incomes derived from transference of real estate to pay.

Here we got a simple formula for calculating the payable tax amount:

the payable tax amount=the added value gains from the real estate transference*progressive tax rates ranging from 30% to 60%

7.Stamp Tax

Stamp Tax stipulated in the Interim Regulation of the People’s Republic of China on Stamp Tax request enterprise and/or individuals which conclude or receive any of the documents listed in the Interim Regulation of China on Stamp Tax to pay.

“The documents listed in the Interim Regulation of China on Stamp Tax” includes documents issued for purchase and sale transactions, property leasing, commodity transportation, storage and custody of goods, loans, business books of account, documentation of rights or licenses, etc.

The formula for calculating the payable tax amount is quite simple too:

the payable tax amount=contract amount*0.03%~0.1%

8.Vehicle and Vessel Tax

Vehicle and Vessel Tax stipulated in the Vehicle and Vessel Tax Law of the People’s Republic of China request the owners or managers of vehicles and vessels to pay.

The vehicle can be divided into Passenger Vehicles and Commercial Vehicles.

Here are the formulas for all above-mentioned types:

(i) Passenger Vehicles(ratified number of passengers 9 or less):

displacement less than 1L: the payable tax amount=CNY 60-360 per vehicle

displacement from 1 to 1.6L: the payable tax amount=CNY 300-540 per vehicle

displacement from 1.6 to 2L: the payable tax amount=CNY 360-660 per vehicle

displacement from 2 to 2.5L: the payable tax amount=CNY 660-1200 per vehicle

displacement from 2.5 to 3L: the payable tax amount=CNY 1200-2400 per vehicle

displacement from 3 to 4L: the payable tax amount=CNY 2400-3600 per vehicle

displacement more than 4L: the payable tax amount=CNY 3600-5400 per vehicle

(ii) Passenger Vehicles(ratified number of passengers more than 9):

the payable tax amount=CNY 480-1440 per vehicle

(iii ) Cargo Vehicles:

the payable tax amount=complete vehicle kerb mass* CNY 16 to 120 per ton

The above is a list of taxes that should be payable for foreign-related enterprises in China. It is complicated issue. If you have any questions or plan to set up a company in China, feel free to contact us.