CentreO Blog

China Corporate Tax 

In Hong Kong, it’s commonly named as Profit Tax. Whereas, taxable income for companies in China are named as Corporate Income Tax. Corporate Income Tax Law in China detailed Implementation Regulations on Taxpayer and Taxable Income.  China’s tax year starts from the first day in the calendar year and ends with the last day in the calendar year.

Hong Kong Limited companies pay profits tax. While unlimited companies are under the personal assessment classification. The same theory applies in Mainland China as well. As well as that, the Sole Proprietorships, Individual Industrial and Commercial Households pay Individual Tax. Whereas, Enterprises pay Corporate Tax. Subsequently, Joint Venture Enterprise pay their tax as per the classification and nature. 

Joint Venture Enterprise Taxable Income

For example, ABC Partnership is 60% owned by DEF Limited Company and 40% owned by Mr. G.

The taxable income for DEF Limited is $60,000

The personal assessment of Mr. G is $40,000

The total taxable income of ABC Joint Venture Enterprise is $100,000 

From the point of view of Taxation. The Enterprises in China are belonging to either Resident Enterprise or Non-Resident Enterprise. 

Differences between Resident and Non-Resident Enterprises 

Resident Enterprises:

• Enterprises established in China
• Enterprises established outside China. But business activities in China

Non-Resident Enterprises:

Enterprises both establishment and management are not in China. Still Non-Resident Enterprises have 2 categories:

• With an institutions or establishments
• Without an institutions or establishments

In fact, for tax purpose, if the revenue of a Non-Resident Enterprise is generating in China. In conclusion, Non-Resident Enterprise has to pay China Tax. 

For further information, please contact us.

You may want to read: DIFFERENCES BETWEEN LOCAL ENTERPRISE & FOREIGN ENTERPRISE IN CHINA

China Corporate Income Tax

According to the Enterprise / Corporate Tax Law. Centre O highlighted the few main articles about the Corporate Income Tax rate as below: 

Article 3

1. A Resident Enterprise should pay Corporate Income Tax on its income generated from both inside and outside China;
2. A Non-Resident Enterprise has set up institutions or establishments in China. It should pay Corporate Income Tax on the income earned by its institutions or establishments from inside China. The income generated from China, but the revenue is actually relevant to the institutions or establishments set up in China.
3. A Non-Resident Enterprise has not set up any institutions or establishments in China. Or it has set up, but the income is not actually relevant to the stated institutions or establishments. The enterprise should pay tax on the portion of the income generated from inside China.

Article 4

1. The rate of Corporate Income Tax is 25%
2. Non-Resident Enterprise as specified in the Article 3(3), the applicable tax rate is 20%.

So, you may think the China Corporate Tax is either 25% or 20%. The tax rate depends on your enterprise type. 

Furthermore, there are more interpretations on Regulation on the Implementation of Corporate Income Tax, it stated that:

Article 91

• Income earned by non-resident enterprises as cited in Article 27 of the Enterprise / Corporate Tax Law shall be subject to a reduced enterprise income tax rate of 10%.

What is mentioned in Article 27? 

There are exemption or tax reduction on following incomes:

1. Incomes from projects of agriculture, forestry, husbandry and fishery;
2. Revenues from business operations of the state supported important public infrastructure investment projects.
3. Incomes from qualified projects of environmental protection, energy and water saving.
4. Revenues from the qualified transferal of technology project.
5. Incomes generating from Article 3(3)

Finally, we figured out the Corporate Income Tax Rate in Article 3(3) is 10%, not 20%. 

Why we don’t tell you the correct Tax Rate instead?

We take an effort to explain to all of you. The Regulation is not straight forward as well. We need to take time to go thought the regulation line by line. In addition, this is also the reason why the China Tax Law seems so difficult to understand. 

Let’s have a Corporate Income Tax Summary 

Summary:

25% for all Resident Enterprises & Non-Resident Enterprise which have set up Institutions and establishments. Income generating from both inside and outside China. 

10% for Non-Resident Enterprises, no matter they have set up Institutions and Establishments or not. Income generating from inside China. 

0% for Non-Resident Enterprises which generated revenue outside China. 

For further information, please contact us. 

You may want to read: HONG KONG TAXATION CONSTITUTION VS CHINA TAXATION CONSTITUTION

Taxation Myth in China

Have you ever heard that in China the revenue from State Administration of Taxation belongs to the Central Government? And the income of Local Tax Bureau belongs to the Regional Government? In fact, the tax bureau is not the organisation to allocate the tax.

Taxes go to the Central Government:

• 100% of Excise Tax / Tariff and Stamp duty;
• 75% of Value-Added Tax
• 60% of Corporate Income Tax & Individual Income Tax
• 50% of Value-Added Tax in lieu of a Business Tax

Taxes go to the Regional Government:

• 50% of Value-Added Tax in lieu of a Business Tax
• 40% of Corporate Income Tax & Individual Income Tax
• 25% of Value-Added Tax
• 100% of Other taxes

Why do you need to know where your taxes go?

As a taxpayer, definitely you have to know where your taxes go. The Regional Government offers financial subsidies to attract investment. The calculation of financial subsidies is according to the tax revenue of Regional Government. So, as an investor, you better start your business with financial subsidies. The financial subsidy is a springboard to assist you to step into China Market.

For further information, please contact us.

You may want to read: CHINA TAXATION SYSTEM HIGHLIGHT FOR INVESTORS FROM OVERSEAS