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China is one of the biggest markets in the world, which attracts more and more global investors moving into the China market. In order to run the business in a most cost efficient way, it is necessary for the foreign investors to understand all the potential relevant tax costs that would be incurred in China before making an investment decision. In addition, different type of investment activities will trigger different types of taxes. We herewith provide you below a brief introduction of the PRC taxation system.
Major Taxes in the PRC
The major taxes applicable to foreigners, foreign investment enterprises ("FIEs") and foreign enterprises ("FEs") doing business in China are as follows:-
| Category |
Type of Tax
|
| Tax on income |
- Enterprise income tax ("EIT") - standard tax rate is 33%, but the tax rate could be reduced to 24% for enterprises located at the coastal cities or 15% for those located at the special economic development zone (Note: Currently, separate EIT systems are applicable to foreigners, FIE and FE, as contrasted with those applicable to local Chinese and domestic companies)
- Withholding income tax on payments to non-residents - a concessionary rate of 10% is currently applicable to interest, rental, royalty and other income
- Individual income tax ("IIT") - progressive rates range from 5% to 45%
|
| Tax on transactions (turnover tax) |
- Value-added tax - general tax rate is 17%, certain necessities are taxed at 13%
- Consumption tax - Tax rates range from 3% to 50%
- Business tax - Tax rates range from 3% to 20%
|
| Tax on specific objective |
- Land appreciation tax - enterprises or individuals who generate gains realized from transfer of the real property and its attachments will be taxed at the progressive rates ranging from 30% to 60%
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| Tax on resource |
- Resources tax - a tax levied on the natural resources
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| Tax on property |
- Urban real estate tax - a tax imposed on the owners, users or custodians of houses and buildings at the rate at either 1.2% of the original value with certain deduction or 12% on the rental value
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| Tax on behaviour |
- Vehicle and vessel usage and license plate tax - a tax generally levied on vehicles and vessels used in the PRC at a fixed amount
- Motor vehicle acquisition tax - 10% of the taxable consideration will be levied on any purchase and importation of car, motorcycles, trams, electric buses, cart and certain types of trucks
- Stamp tax - enterprises or individuals who execute or receive "specified documentation" in China will be taxed and the tax rates vary between 0.005% to 0.1%
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| Tax levied by the Customs |
- Customs duties - enterprises or individuals who import or export goods will be taxed at various rates
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| Tax levied by finance department |
- Deed tax - transferees or assignees of the ownership of land use rights or real properties will be taxed and the general tax rates are ranged from 3% to 5%
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Various EIT incentives are currently available for FIEs. However, due to the accession to the World Trade Organisation (WTO), some of the said incentives would be removed. For the companies engaging in manufacturing and trading activities, a WTO impact study would be helpful in the planning of future business strategy in China. IIT compliance issue is the major tax investigation target lately, especially for the MNC whose assignees or/and expatriates are working in China. An IIT health check will therefore help to mitigate the future risk. |
