Hong Kong implements Common Law. In addition to Hong Kong tax system, the Inland Revenue department launched the Departmental and Practice Notes (DIPNs) regarding to the tax related guideline. At the same time, tax regulations also follow the court precedents. Whereas, China implements Continental Law. However, the tax regulations are being set up by 4 different departments.
- National People’s Congress for the taxation system of Corporate Income Tax
- State Council for the regulation and implementation of Corporate Income Tax
- Ministry of Finance for the Taxation Policy
- State Administration of Taxation for the Implementation and operation the regulations
Other Tax Constitution on handling Special Case
For instance, the situation with Value Added Tax (VAT)is not under to the official taxation regulation. Altogether, 3 departments are working on VAT temporarily as below:
- State Council temporarily implement the regulation
- Ministry of Finance temporarily implement Regulations and the Rules
- State Administration of Taxation implement and operation the regulations
Localisation of Tax Regulations
The Central Government has delegated the Local Government to formulating local tax regulation. For example, the Real Estate Tax.
Provision Regulation for Real Estate Tax
The percentage of the Real Estate Tax varies. For instance, the local government of difference Provinces, Administration Regions and Municipalities have their rights to establish their own tax rates. And the tax rate are required to file to the Ministry of Finance.
For example, you purchased a factory with RMB 10 million. The percentage of the Real Estate Tax in Shenzhen and Shanghai are different. The calculation of the tax is as below:
Shenzhen: RMB10,000,000 x 1.2% x (1-30%) = RMB84,000
Shanghai: RMB10,000,000 x 1.2% x (1-20%) = RMB96,000
As a results, it’s cheaper to purchase the factory in Shenzhen than from Shanghai.
Discount Rates
In addition to the Real Estate Tax, the local government are allowed to establish their own discount rates on the Real Estate Tax. From the above example, there is a discount of 20% or 30% off comparing between Shenzhen and Shanghai respectively.
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You may want to read: CHINA TAXATION VS HONG KONG TAXATION FOR FOREIGN INVESTORS