Business and Taxes in China
The taxation system in China is somewhat complex and subject to frequent change, and anyone wanting to set up a business in China would do well to hire a local tax consultant. There is an abundance of international and Chinese firms to choose from in Beijing and other major commercial and industrial centers. Tax concessions and exemptions can vary to a large extent on which part of this vast country you decide to set up business. Other variable taxation factors include the industry sector your business will be allocated to and even the legal structure you will make use of in China. If you will be employing workers you would also want to bear in mind that the amount of income tax they will pay is determined by their terms of employment.
The following is a broad overview of the taxes companies may be subject to, which will be tailored to your particular circumstances:
- All foreign businesses operating in China are subject to Corporate Income Tax, which is levied at a top rate of 25 percent on net income. Preferential rates may apply to certain low profit ventures and high technological enterprises.
- All enterprises and individuals carry out business in China are subject to Business Tax, which is levied on revenue received for taxable services, the sale of immovable property and the transfer of ownership of intangible assets. Rates of Business Tax are determined by the industry, and can vary from as low as 3 percent to as high as 20 percent.
- Although representative offices don’t trade of earn income in China, they are subject to Business Tax calculated according to monthly overheads, and Corporate Income Tax.
- Foreign enterprises that take profits in the form of dividends out of China are subject to a 10 percent Withholding Tax. Overseas companies that receive payments for services to businesses in China are also subject to Withholding Tax.
- Value Added Tax (VAT) applies to enterprises and individuals engaging in import and export, production, and commercial business in China. Concessions in the form of reduced rates apply in some instances.
- All enterprises that import, manufacture or process goods deemed to be luxury goods are subject to Consumption Tax. Luxury goods include such products as alcohol, jewelry, cosmetics and yachts.
- Foreign nationals living and working in China are subject to Individual Income Tax at a rate determined by income, length of stay, position in the company and other factors.
Severe penalties can be incurred for late payment, non-payment and any contravention of laws governing taxes, so it is essential to understand the laws applying to your particular situation and get yourself an efficient, knowledgeable tax consultant. While this may all seem rather daunting, established businesses have found the rewards to be worthwhile.