International Tax: China Overview
In conjunction with Leading Edge Alliance Partner
Dezan Shira & Associates
December 2012
www.KahnLitwin.com
Boston ♦ Newport ♦ Providence ♦ Waltham
888-KLR-8557 ♦[email protected]
2013 International Tax Guide: China
Foreign Investment plays an important role in every economy. This applies to US companies
investing in the Asian markets, and foreign domiciled companies investing into the United States.
We understand that every business has a unique set of facts and circumstances that trigger specific
tax obligations. That said, understanding the tax year and corporate tax filing requirements is a key
starting point when doing business in China.
I.
Corporate Income Tax
Entities and other income-generating organizations pay corporate income tax (CIT) based on the
income resulting from production, business operations and other sources. In China the standard CIT
rate is 25% for both foreign and domestic enterprises.
The CIT for small-scale enterprises is 20% and if the tax payer qualifies as a high-tech enterprise
their reduced CIT rate is 15%. To qualify as a high-tech enterprise you must meet a very specific list
of qualifications including technical staff, be included in a field supported by the state and meet
certain R&D ratio requirements.
Corporate Tax Rates
Standard
25%
II.
Small-scale
20%
New high-tech
15%
Value Added Tax (VAT) and Business Tax (BT)
Both VAT and BT exist in China which has led to duplicate taxation and a government discussion to
reform the current VAT system so that it can replace BT.
What is Value Added Tax? VAT is levied on the sales and important tangible good, and the
provision of processing, repair and replacement services. Learn more on VAT in our previous blog
titled “VAT General Taxpayer Status: How and Why”.
Value-Added Tax
Standard
Rate
Pilot
Program
Rate
17%
Leasing of moveable and
tangible goods
17%
Foods, Books, good and utilities
13%
Transportation sector and other
modern services
11% and 6 %
Small-scale
3%
What is Business Tax? BT is levied on the provision of other services and the transfer of
intangibles and real property at 3% or 5% (5%-20% for the entertainment industry). Read more on
this in our previous blog titled “Getting Paid from China- Procedural and Tax Implications”.
Business Tax Rates
Most services
Entertainment
3% or 5%
5% - 20%
In 2012, Shanghai, Beijing, and other major cities began replacing BT with VAT in the transport
sector and six modern service industries, and the reform is expected to be rolled out on a national
level in 2013.
III.
Withholding Tax
The withholding tax in China on dividends, interests and royalties is 10% and 25% on technical
services fees as shown in the chart below.
Withholding Tax
Dividends, interests, royalties
Technical service fees
10%
25%
Many small and medium sized enterprises (SMEs) choose to establish holding companies for their
China investments in Hong Kong, due to the regions administrative and tax efficiency, as well as its
geographical proximity to China. Under the double tax agreement between Hong Kong and China,
payment paid by a mainland company to a Hong Kong resident that holds at least 25% of the capital
of the mainland company are subject to a 5% withholding tax. This means that a Hong Kong holding
company can lower the withholding tax paid by a Chinese subsidiary to its foreign parent company
from 10% to 5%.
IV.
Individual Income Taxes
Individual income taxes in China are complex and changes to the system are frequent. Expatriates
should be aware that newcomers must register for income tax, work visas and residence permits, and
those expats who worked in China during 2011 must still report separate annual IIT filings in
addition to their monthly tax returns. There are substantial financial penalties if this is not carried out
for both the individual and the employer.
One commonly talked about rule due to China’s multi-tiered system of tax liabilities for foreigners,
is the so-called 90 or 183 days rule. For those sent to China by a foreign company, who have their
salary paid elsewhere (probably in their home country), and spend more than 183 days of a calendar
year in China (or 90 if they are from a country that does not have a double tax treaty with China),
they need to pay IIT in China based on the number of days they effectively spent in the country.
New-to-China expatriates with full-time employment in China need to make sure they are in
compliance with Chinese income tax. It is the individual’s responsibility to comply with this law.
Fines can be levied and passports censured if this is not completed.
If you are a newcomer, before ending or signing any contracts, make sure to:
•
•
•
Obtain a work visa
Get a residence permit
Register for income tax
Your employer should arrange this for you (the employee). This is a serious issue and only gets
potentially worse every month if it is ignored.
When an individual's stay in China ends, that person must reconcile their income with the
authorities. You will be expected to share any immigration records, visa type and the length of stay
with the immigration authorities and the tax bureau.
The chart below outlines the individual income tax rates in China.
Individual Income Taxes
Monthly taxable salary (CNY)
Up to 1,500
Over 1,500-4,500
Over 4,500 to 9,000
Over 9,000 to 35,000
Over 35,000 to 55,000
Over 55,000 to 80,000
Over 80,000
V.
Annual taxable income (US$)
(US$1= 6.23 CNY)
Up to 240.77
Over 240.77 to 722.31
Over 722.31 to 1,444.62
Over 1,444.62 to 5,617.98
Over 5,617.95 to 8,828.25
Over 8,828.25 to 12,841.09
Over 12,841.09
Individual Income Tax
Rate (IIT Rate)
3%
10%
20%
25%
30%
35%
40%
Key Taxation Deadlines in China
The following are the key tax deadlines in China:
Date
March 30th
th
May 30
December 31st
Deadline
IIT Filling Due
Corporate Tax Filing Due
Fiscal Year End
There are a number of ways in which you can structure your global activities, depending upon your
business model. What is key, is choosing a structure that is compatible with the way the group
anticipates operating in the specific countries. That said, there will be tax consequences from a US
and local country perspective.
If you have questions regarding international tax rates or specific business related tax matters and
would like to discuss further please contact Neelu Mehrotra, Principal or any member of the
International Tax Services Group.
KLR is a premier provider of international tax services to middle market companies and works with
both foreign-based companies moving to the U.S. market as well as domestic companies that do
business around the world. The KLR International Tax group is available to assist clients with any
tax issues pertaining to either inbound or outbound tax issues, both from a corporate perspective as
well as for multinational families. Those issues may include the IRS’ Voluntary Disclosure Program,
planning for intellectual property transfers, transfer pricing, export incentives, and global
restructuring projects.
Sources:
Dezan Shira & Associates, Inc. is a specialist foreign direct investment practice, providing
corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due
diligence and financial review services to multinationals investing in emerging Asia. Since its
establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies
with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison
offices in Italy and the United States.
Leading Edge Alliance – KLR is an active member of the Leading Edge Alliance, an international
professional association of over a hundred independently-owned accounting and consulting firms.
The Leading Edge Alliance enables KLR to access the resources of multibillion dollar global
professional services organization, providing additional industry expertise, professional training
and education, and peer-to-peer networking opportunities nationally and globally, around the
corner and around the world.
888-KLR-8557 ♦ KAHNLITWIN.COM ♦ [email protected]
Boston ♦ Newport ♦ Providence ♦ Waltham