flag China China: Tax system

In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

 

Corporate Taxes

Tax Base For Resident and Foreign Companies
An enterprise is resident in China if it is established in or if its place of effective management is in China. Effective management is defined as substantial and overall management and control over manufacturing and business operations, human resources, financial and property aspects of the entity. A foreign company will also be subject to tax in China if it has an "establishment" in China or if it derives income from China. The definition of an establishment is broad and includes also independent agents. When a foreign company has an establishment in China, it will be subject to tax on all income effectively connected with that establishment.
 

Tax Rate

Standard rate 25%
Small and low-profit enterprises 5% of the portion of annual taxable income that does not exceed CNY 3 million (from 2023 to 2027)
Companies engaged in encouraged industries in certain regions (e.g. Western Regions, Hainan Free Trade Port, Lingang New Area of Shanghai Pilot Free Trade Zone, etc.) 15%
Qualified technology-advanced service enterprises and new/high tech enterprises 15%
Key software production enterprises and IC design enterprises 10%
Qualified enterprises engaged in pollution prevention and control 15% (untill 2027)
 
Tax Rate For Foreign Companies
A non-resident enterprise that has no establishment or place in China is taxed only on its China-source income. A non-tax resident enterprise with an establishment or place in China is subject to corporate taxes on income derived by such establishment or place from sources in China as well as income derived from outside the country that is effectively connected with such establishment or place.
A 10% withholding rate (temporarily reduced from 20%) is applied to China-sourced income not related to a non-resident enterprise’s establishments in China, or China income derived by non-resident enterprises without establishments in China.
Capital Gains Taxation
There is no separate capital gains tax in China; capital gains (and losses) of companies generally are combined with other operating income and taxed at the corporate income rate (25%).

The sale of real estate and net development costs are subject to the land appreciation tax at four bands ranging from 30 to 60% (depending on the percentage of the gain realised).

Main Allowable Deductions and Tax Credits
Generally, all documented expenses, costs and losses in generating taxable income are deductible up to a limit: entertainment expenses are 60% deductible up to 0.5% of total income, advertising (up to 15% of total income, 30% in some cases) and donations (up to 12% of total income; although donations for poverty alleviation in certain areas can be fully deducted). Non-deductible items include dividends, management fees, Enterprise Income Tax (EIT) paid and late tax payment surcharge fees.

A deduction is allowed for the amortisation of intangible assets, including patents, trademarks, copyrights, and land use rights. Intangible assets have to be amortised over a period of at least ten years. Organisational and start-up expenses are tax-deductible fully in the first year of activity. Interest on loans is also tax-deductible (subject to conditions). 200% of the salary expenses paid to handicapped staff are deductible.

200% of contributions to non-profit R&D institutions, higher education institutions, or government natural science funds for basic research are deductible. Starting 1 January 2023, 200% of eligible R&D expenses are tax-deductible. For intangible assets formed from these expenses, tax amortization is based on 200% of their cost. From 1 January 2023 to 31 December 2027, integrated circuit enterprises and industrial mother machine manufacturers can deduct 220% of eligible R&D expenses. Tax amortization for intangible assets from these expenses is based on 220% of their cost.

Tax losses can normally be carried forward for a maximum of five years starting from the year subsequent to the year in which the loss was incurred, while carryback of losses is not permitted.

Preferential tax treatments in the form of incentives are further granted to new high-technology enterprises (HNTE), companies in special economic zones (SEZ) and pilot free trade zones (FTZ), while exemptions may apply to agriculture, forestry, fishery, software, infrastructure and other specified environment and technology developments.

Other Corporate Taxes
A real estate tax, based on property value or rental income, is assessed annually on business or leased land and buildings. The tax rate is 1.2% of the original building value, with local governments often offering a 10% to 30% reduction. Alternatively, the tax can be 12% of rental income. This tax is deductible for CIT purposes. Furthermore, an urban land usage tax is imposed on the land area occupied, with rates ranging from RMB 0.6 to RMB 30 per square meter. Additional minor local levies may also apply. An arable land occupation tax also applies on companies and individuals who build houses or carry out non-agricultural construction on arable lands.

A deed tax, typically ranging from 3% to 5%, may be levied on the purchase, sale, gift, or exchange of land-use rights or real property ownership. The transferee/assignee is responsible for paying the tax.

The sale of real estate and net development costs (or land use rights) are subject to the Land Appreciation tax at 30 to 60% (depending on the percentage of the gain realised).

Stamp duty (0.005% - 0.1%) is levied on specific legal documents.

The employer contributes around 16% of the basic payroll to the state-administered retirement scheme, as well as to medical insurance, maternity insurance, unemployment insurance, and work-related injury insurance funds (bringing the total to up to 40% of base monthly salary, with actual rates varying across the country - it is 28% in Shangai).

An urban construction and maintenance tax is levied on the amount of indirect tax (VAT, consumption tax), at a rate of 7% for urban areas, 5% for county areas, and 1% for other areas.

An educational surtax of 3% is imposed on the amount of China's indirect taxes (VAT and consumption tax) payable by the taxpayer. Additionally, a local educational surtax of 2% is also levied on the same amount. Thus, taxpayers of indirect taxes are also subject to both educational surtaxes.

A motor vehicle acquisition tax is levied at 10% of consideration on automobiles, tramcars, trailers, and motorcycles. A vehicle and vessel tax also applies (generally at fixed amounts).

Companies and individuals active in the entertainment and advertising businesses are subject to a cultural business development levy at 3% on the relevant income.

Local authorities levy a resources tax on natural resources, including crude oil, natural gas, coal, salt, raw metallic metals, non-metallic metals, mineral water, carbon dioxide gas, and water (in 10 provinces). This tax is applied on a sales turnover or tonnage/volume basis.

An environmental protection tax (EPT) is levied on enterprises that directly discharge taxable pollutants within the Chinese territory. It is calculated based on the volume of pollutants discharged multiplied by a specific EPT coefficient.

Other Domestic Resources
State Tax Administration
 

Country Comparison For Corporate Taxation

  China East Asia & Pacific United States Germany
Number of Payments of Taxes per Year 7.0 23.4 10.6 9.0
Time Taken For Administrative Formalities (Hours) 138.0 195.1 175.0 218.0
Total Share of Taxes (% of Profit) 59.2 33.8 36.6 48.8

Source: The World Bank - Doing Business, Latest data available.

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Accounting Rules

 

Accounting System

Accounting Standards
The accountancy standards for companies were put into effect by the Ministry of Finances (MOF). China established its first complete standards specific to accountancy in 1997 and the MOF promulgated an additional 13 standards more specific to accountancy since then.

Chinese Accounting Standards for Business Enterprises (ASBEs) are mandatory for listed Chinese enterprises. Other Chinese enterprises are encouraged to apply the ASBEs, which are substantially in line with IFRS, except for certain modifications that reflect China’s circumstances and environment. China is committed to converge with IFRS.

Foreign Invested Enterprises (FIE) may prepare financial statements in accordance with other accounting standards or in other languages for global consolidation purposes. However, the Chinese authorities will only recognise and accept accounts in Chinese that are prepared based on Chinese accounting standards.

Accounting Regulation Bodies
CICPA, Chinese Institute of Chartered Accountants
Accounting Law
Initially promulgated in 1985, the Accounting Law of December 1993 was updated in 1999. It includes the legal standards governing accountancy and forms the base for the formulation of administrative rules and regulations for accounting.
Difference Between National and International Standards (IAS/IFRS)
China adopted Accounting Standards for Business Enterprises (ASBEs) that are substantially converged with IFRS standards. ASBEs are imposed on all Chinese companies whose securities trade in a public market in China. Additionally, Chinese companies whose securities trade on the Stock Exchange of Hong Kong have the option to choose among IFRS Standards, Hong Kong Financial Reporting Standards (HKFRS), and Chinese Accounting Standards (ASBEs). Acccording to latest reports (IFRS Foundation), 30% of Chinese companies that capitalise 69% of the market in Mainland China already use IFRS standards.
 

Accounting Practices

Tax Year
From 1 January to 31 December
Accounting Reports
Audit reports normally contain a paragraph defining the 'task' or 'scope' and a paragraph of opinion. The paragraph of opinion aims to establish if the accounts were prepared according to the appropriate rules/regulations and any reservations in opinion must be elaborated above.

Statements of financial accounts or reports should comprise a balance sheet, profit and loss accounts, a report of gross self-financing margin, notes on the accounts and an account for appropriation of profits and losses.

For more information consult the website of China Accounting operating under the Ministry of Finance.
Publication Requirements
Annual publication
 

Accountancy Profession

Accountants
The Chinese Institute of Chartered Accountants oversees accountants in China.
Professional Accountancy Bodies
CICPA, Chinese Institute of Chartered Accountants website
Member of the International Federation of Accountants (IFAC)
Yes
Member of Other Federation of Accountants
Member of the Confederation of Asian and Pacific Accountants (CAPA) which represents national accountancy organisations in the Asia-Pacific region.
Audit Bodies
Chinese law requires representative offices and foreign-invested enterprises to utilise the services of accountants registered in China to prepare official submissions of annual financial statements and other specified financial documents. Only Chinese accountants and joint venture accounting firms may provide these services. Companies must seek a statutory auditor to conduct an annual audit of the financial health of their organisation. To find an auditor, contact the National Audit Office of China (CNAO).
 
 

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Consumption Taxes

Nature of the Tax
Value added tax (VAT) and Consumption tax
Standard Rate
While the standard rate is 13%, it varies depending on the taxpayer status, type of product and service and type of sector.
Reduced Tax Rate
Goods and services taxable at 3% include certain taxable used goods, consignment goods sold by agencies, certain goods sold by pawnbrokers, specific duty-free items from duty-free shops, certain electricity by qualified hydroelectric businesses, certain construction materials, certain biological products, tap water (if simplified computation method is chosen), certain concrete cement goods by general taxable persons, non-academic education services, interest income from agricultural loans by Agricultural Development Bank of China and affiliates, certain rare disease drugs (orphan drugs).

Goods and services taxable at 5% include labour dispatching services and human resource outsourcing services.

Goods and services taxable at 6% include R&D and tech services, IT services, culture and creative services, logistics support, authentication and consulting, radio/film/TV services, business support, other modern services, value-added telecom services, loan services, direct financial services, insurance, financial product trading, cultural/sports services, education/medical services, tourism/entertainment, catering/accommodation, daily services, other lifestyle services, intangible asset sales.

Goods and services taxable at 9% include agricultural products (including grains), tap water, heating, liquefied petroleum gas, natural gas, edible vegetable oil, air conditioning, hot water, coal gas, household coal products, food-grade salt, farm machinery, fodder and pesticides, agricultural film, fertilizer, methane gas, dimethyl ether, books, newspapers, magazines, audiovisual products, transportation services, postal services, basic telecommunication services, construction services, sales of immovable properties acquired or developed after 1 May 2016, leasing of immovable properties acquired or developed after 1 May 2016, transfer of land use rights.

Zero-rated (exempt-with-credit) goods and services include exports of goods (excluding prohibited or restricted exports) and services rendered by domestic entities or individuals to overseas entities and consumed entirely outside the country, including international transportation services, including transportation services for Hong Kong SAR, Macau SAR and Taiwan, China; space transportation services; research and development services; contractual energy performance services; design services; radio, film and television programs (works) production and distribution services; software services; circuit design and test service; information systems services; business process management services; offshore outsourcing services, including information technology outsourcing (ITO), business process outsourcing (BPO) and knowledge process outsourcing (KPO); technology transfer.

Taxpayers that supply items eligible for VAT reduction must book these sales separately. Otherwise, no reduction applies.

To support small- and micro-sized enterprises (SMEs) and individual businesses, VAT reduction and exemption policies for small-scale taxable persons have been extended. From 1 April 2021 to 31 December 2027, small-scale taxable persons will have a reduced VAT rate of 1% on taxable sales revenues normally subject to 3%. For items requiring VAT prepayment at 3%, the prepayment rate is also reduced to 1%.

Exclusion From Taxation
Exempt goods include agricultural products by primary producers, contraceptive medicines/appliances, antique books, imported scientific equipment, imported foreign aid, imported handicapped-exclusive products, secondhand goods by individuals.

Several cross-border services are also exempt, including construction projects abroad, engineering supervision abroad, engineering/mineral surveys abroad, foreign conferences/exhibitions, storage abroad, leasing abroad, broadcast programs, cultural/sports/education/medical/tourism services abroad, postal/dispatch/insurance for exports, non-zero-rated international transport, non-zero-rated transport to/from/in HK/Macau/Taiwan, services for overseas entities consumed outside mainland China, international transport by non-operating carriers, direct chargeable financial services abroad.

Taxpayers that supply items eligible for tax exemption must book these sales separately. Otherwise, no tax exemption applies.

Method of Calculation, Declaration and Settlement
The sales or importation of goods, the provision of services, and the sales of intangible properties and immovable properties are subject to VAT, whose rate is applicable on volume (taxation by volume) or on the value of the goods (ad valorem taxation). A Chinese company must register with local tax authorities upon incorporation to be recognized. If recognized as a general VAT payer, it can calculate VAT payable by crediting input VAT against output VAT. Foreign companies typically are not recognized as general VAT payers. VAT returns must be filed monthly and submitted by the 15th of the following month. Taxpayers importing goods must pay VAT within 15 days after the customs authorities issue the tax payment certificate.
There are two classes of taxpayers: general taxpayers, which are taxpayers with an annual turnover of CNY 5 million or more; and small-scale taxpayers, which are taxpayers with an annual turnover below this threshold.
From 2023 through 2027, general VAT payers in certain sectors receive a "super credit," an additional VAT credit based on a percentage of the creditable input VAT. The super credit rate is 5% for manufacturers with new/high-technology enterprise status and 15% for qualifying integrated circuit enterprises.
Other Consumption Taxes
Consumption tax applies to prescribed nonessential and luxury or resource-intensive goods (including alcohol, luxury cosmetics, fuel oil, jewellery, motorcycles, motor vehicles, petrol, yachts, golf products, luxury watches, disposable wood chopsticks, tobacco, certain cell and coating products), and it mainly affects companies involved in producing or importing these goods. The tax is calculated based on the sales value of the goods, the sales volume or a combination of the two. Exports are exempt.

A tobacco tax is levied on the purchase of tobacco leaves within the country's territory, at the rate of 20% of the purchasing value.

Stamp duties may be levied on specific legal documents (rates between 0.005%-0.1%).

China levies a motor vehicle acquisition tax on the purchase and importation of cars, motorcycles, trams, trailers, carts, and certain types of trucks. The rate is equal to 10% of the taxable consideration. A vehicle and vessel tax is also levied at fixed amounts according to the weight.

A vessel tonnage tax is levied on any vessel entering a port inside the territory of China from overseas, calculated according to the tonnage multiplied by the applicable tax rate that is determined based on the net tonnage and the term of the tonnage tax license.

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Individual Taxes

Tax Base For Residents and Non-Residents
Individuals who reside in China for 183 days or more in a tax year are considered residents for taxation purposes.
Are considered China-domiciled the individuals who maintain residence in China because of their legal residency status, family, or economic ties and who habitually reside in China.
Residents are taxed on their national and international incomes. Non-residents are taxed on the incomes earned in China.
 

Tax Rate

Income from wages/salaries Progressive rates
Annual taxable income (after deducting the standard basic deduction, specific deductions, specific additional deductions, and other allowable deductions)
CNY 0 - 36,000 3%
CNY 36,000 - 144,000 10%
CNY 144,000 - 300,000 20%
CNY 300,000 - 420,000 25%
CNY 420,000 - 660,000 30%
CNY 660,000 - 960,000 35%
CNY 960,001 and above 45%
Income from Private Businesses Progressive rates (Taxable income = Total Revenue - Costs - Expenses - Losses)
CNY 0 - 30,000 5%
CNY 30,000 - 90,000 10%
CNY 90,000 - 300,000 20%
CNY 300,000 - 500,000 30%
CNY 500,001 and above 35%
Non-resident (employment income, remuneration for labour services, author’s remuneration,royalties - calculated by each category on a monthly or transaction basis) Progressive rates (3-45%)
CNY 0 - 3,000 3%
CNY 3,000 - 12,000 10%
CNY 12,000 - 25,000 20%
CNY 25,000 - 35,000 25%
CNY 35,000 - 55,000 30%
CNY 55,000 - 80,000 35%
CNY 80,001 and above 45%
Incidental income, rental income, interest income, dividends, and capital gains Flat rate at 20%
 
Allowable Deductions and Tax Credits
Deductions and allowances are available, depending on the category of income. For wages and salaries received in China, individuals also receive a flat monthly deduction of CNY 5,000.

Personal basic contributions are deductible. These include payments to housing funds and certain medical insurance, pension and unemployment insurance payments. Taxable income from personal services, royalties and remuneration from manuscripts and the leasing of property is net of a standard deduction for expenses that is equal to 20% of total income. Reasonable business expenses incurred in earning income from a business are deductible. Rental income is also subject to deduction (according to the monthly amount received). For sales of property, the original cost of the property and reasonable expenses incurred are deductible from the sales proceeds to determine the taxable income.

Certain specific deductions also apply, including child education (CNY 2,000 per child per month); continued education (CNY 400 per month or 3,600 per year depending on the type of qualified continued education); mortgage interest (CNY 1,000 per month); rental expense (CNY 800, 1,100, or 1,500 per month depending on the location); elderly care (up to CNY 3,000 per month depending on the status of the taxpayer); major medical expense (qualified self-paid portion above CNY 15,000 and capped at CNY 80,000 per year for each eligible individual); care expense for children under the age of 3 (CNY 2,000).

Charitable contributions to qualified domestic non-profit organisations are deductible up to 30% of taxable income.

Losses from privately-owned businesses and sole proprietorship enterprises can be carried forward for five years.

Special Expatriate Tax Regime
Residents are subject to individual income tax on their worldwide income. Non-residents are generally taxed only on their China-sourced income.
For the rates applied on non-residents' income derived from employment, remuneration for labour services, author’s remuneration, and royalties, see the table above.

Certain categories of income are considered China-sourced income regardless of whether the payments are made within China or not, including:

  • Income derived from employment or contracted labour services performed within the territory of China
  • Rental income in relation to property used within the territory of China
  • Income derived from the transfer of real property located within China or other property transfer transactions incurred within the territory of China
  • Income derived through the grant of various franchises to be used within the territory of China
  • Interest and dividend income paid by companies, enterprises, other organisations, or resident individuals within the territory of China.

When calculating taxable employment income for non-residents, IIT law only allows the standard basic deduction of CNY 5,000 per month.
Foreign individuals are subject to deed tax and stamp duty upon the purchase of real property in China.

Capital Tax Rate
A fixed income tax rate of 20% is applicable to income from rental income, interest income, dividends, and capital gains unless specifically reduced.
Social security contributions vary according to the region (consult a list here).

Consumption tax applies to prescribed nonessential and luxury or resource-intensive goods (including alcohol, luxury cosmetics, fuel oil, jewellery, motorcycles, motor vehicles, petrol, yachts, golf products, luxury watches, disposable wood chopsticks, tobacco, certain cell and coating products), and it mainly affects companies involved in producing or importing these goods. The tax is calculated based on the sales value of the goods, the sales volume or a combination of the two. Exports are exempt.

A real estate tax based on the value of the property or rental received is levied annually on land and buildings used for business purposes or leased. The tax rate is 1.2% of the original value of buildings. A tax reduction of 10% to 30% is commonly offered by local governments. Alternatively, tax may be assessed at 12% of the rental value.

An urban and township land-use tax applies to taxpayers, including individuals, utilizing land within city, county, township, and mining districts. It's calculated annually based on occupied area multiplied by a fixed rate per square meter set by local governments. Many provinces/cities exempt individuals from this tax on residential properties. Additionally, a land appreciation tax is imposed on gains from land-use rights or real estate sales, with rates ranging from 30% to 60%. Individuals are exempt from this tax when selling residential properties.

No inheritance, estate, or gift taxes are currently levied in China.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
International tax treaties signed by China
Withholding Taxes
Withholding tax rates in China are 10% for dividends, interest and royalties paid to non-resident companies (0% for resident companies). When paid to resident and non-resident individuals, the rate is 20%.
A 6% VAT generally applies to interests and royalties (which could be waived in case of royalties paid for technology transfer).
Bilateral Agreement
The United Kingdom and China are bound by a double taxation treaty.

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Sources of Fiscal Information

Tax Authorities
State Taxation Administration
Department of Finance
Other Domestic Resources
China Briefing - Tax Guide
Country Guides
PWC Tax Guide - China

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Latest Update: April 2024