If you plan to do business in China you need to know about the taxes that will apply. While taking individual advice is essential in all matters to do with tax, you can get ahead with this guide to corporate income tax in China, VAT, China profit tax and China business tax on foreign services.
Get your taxes right the first time to make life simple, and save money in the end. To help you cut the costs of running your business we’ll also introduce Wise business payments as a smart, fast and cheap way to make USD and EUR payments to businesses in China, using the real mid-market exchange rate.
Before you decide to start doing business in China it is well worth taking time to understand the Chinese tax system. Chances are that the tax structure in China doesn’t work in the same way as you’re used to. As well as differing tax rates to consider, some familiar taxes work differently in China, and other unfamiliar charges may apply on your income or turnover instead.
The actual tax you end up paying for your business - whether you’re running a WFOE, joint enterprise or other type of entity, depends on the specifics of your situation. The type of goods or services you sell, the size of your organisation and where in the country you’re based may all make a difference. As well as a range of taxes to know about, there are also national and regional incentives, including tax reductions and exemptions for some businesses, which you’ll need to investigate.
We’ll dive into some common Chinese business taxes shortly. First, let’s look at an overview of the China tax system. Global accounting and consultancy service firm, PWC splits out the key types of tax that can apply in China into the following categories:¹
- Tax on income such as company and individual income tax
- Tax on turnover including VAT, consumption tax and business tax
- Tax on property
- Tax on behaviour applied to vehicle ownership or receiving certain documents
- Customs taxes on imported goods
- Finance Department taxes on land and real estate purchases
- Specific taxes on resources and land appreciation
One thing you may notice is that there’s no capital gain tax for China listed. Capital gain tax - familiar in many other countries - is not specifically split out under Chinese tax rules. Instead, gains would be taxed in the same way as other relevant company income, or under one of the other tax categories if they apply. Land appreciation tax, for example, would apply if you sell land at a profit - even without a separate capital gains tax law.
Which taxes you need to pay will be dictated by your company type. Most businesses in China need to consider the following taxes:
- Corporate income tax (CIT)
- Personal income tax for employees
- Withholding tax
However, you may also need to know about several other China business taxes including:
- Consumption tax - covers businesses working in 14 different product types like cars, luxuries, tobacco and alcohol
- Business tax applied on service businesses and property sales
- Property, land appreciation and deed taxes if you buy, sell or hold real estate
- Customs taxes if you import goods to China
- Vehicle ownership and operation taxes if you have company vehicles
The basic corporate income tax rate at the time of writing is 25%. This is calculated on the eligible turnover of the business you’re running. However, it’s good to know that CIT can be reduced for some businesses under government incentives. This will usually be based around encouraging industries which are beneficial to the national interest, and may be decided on company turnover, industry area or where in the country the business operates.
Here’s what you need to know:²
|Business type||Corporate income tax rate|
|Qualified enterprises in some industries or regions being encouraged by the Chinese government||10% - 15%|
|Most other businesses||25%|
|Qualified small or thin-profit businesses||2.5% - 5% (temporary measures through to 31 December 2022)|
VAT in China is calculated according to product type. There is also a similar tax - business tax - used when businesses sell services or property instead of goods.
VAT and business taxes will be reassessed from time to time, so you’ll need to check out the latest details before you start to do business in China. At the time of writing the rates are set as follows:³
|China business turnover tax type||Rate payable|
|VAT on sales and import of most goods||13%|
|VAT on necessity goods||9%|
|Business tax on services and property sales||Varied by service type|
Chinese business taxes are reviewed and do change over time. You may find that specific incentives or deductions apply for your business type, either on a national or regional level.⁴ Get professional advice to check out if there are any tax exemptions which may be useful when calculating your China business taxes.
Aside from specific business incentives, there are some deductible costs which usually apply when calculating CIT. These include:
- Business costs and expenses
- Charitable donations
- Depreciation and amortisation
- Business losses and taxes already paid
The tax year in China runs 1 January to 31 December. Businesses will usually need to file and pay their business taxes either monthly, quarterly or annually. Monthly and quarterly tax returns need to be closed 15 days after the end of the period. Annual tax returns can be submitted and paid up to 5 months after the end of the period.⁵
Tax is never straightforward - and when you’re dealing with taxes in a different country it’s especially important to do your homework and get all the support you need to comply with your obligations. Use this guide as a starting point and take professional advice on the China business taxes you need to know about - you’ll save money in the end by filing and paying your taxes right first time.
You could also save money by using Wise business payments when you need to pay your suppliers or contractors in China using foreign currencies. Send business payments in USD or EUR, which use the real mid-market exchange rate every time. That means you can save significantly on the costs of international payments, compared to using your regular bank. CNY business payments are coming soon to Wise - check out the options now and see how you can save.
Sources used in this article:
1 PwC China: Overview of PRC Taxation System
2 PwC Worldwide Tax Summaries: Corporate - Taxes on corporate income
3 PwC Worldwide Tax Summaries: Corporate - Other taxes
4 PwC Worldwide Tax Summaries: Corporate - Tax credits and incentives
5 PwC Worldwide Tax Summaries: Corporate - Tax administration
Sourced last checked on 20-Oct-2021
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