Date de publication : 06-10-1907
The following information are for the sole purpose of providing a general overview of the local taxation of the Corporate tax aspects of the country. In any case, the information provided below cannot be considered as comprehensive or deemed to constitute specific legal advice.
Yes we tax in China
New tax reform:
- State Council meeting on 28 March 2018 announced changes in VAT (cf. below)
New tax treaties:
- Tax treaty between China and Romania enters into force.
- Tax treaty between China and Kenya is signed.
- Protocol to tax treaty between China and Pakistan enters into force.
Local tax advisors
No specific information on the local tax advisors.
There is no permanent establishment definition under the domestic tax law, but rather a term of « establishment » and « place ». Such terms include management offices, representative offices, places where services are provided, factories and place of extraction, construction and installation site, etc.
Resident companies are taxed on their worldwide income (« worldwide principle »). However, non-resident companies are only taxed on their revenues derived from China sources (« source principle »).
Entities are considered to be resident for tax purposes in China if they are incorporated in China; or if their place of management & control is in China.
Note: the definitions of permanent establishment and place of residence are subject to the relevant provisions of any applicable double tax treaty, if any.
Corporate Income Tax
The general CIT tax rate is 25%.
Note: CIT tax rate is 15% for high technology enterprises.
Non-taxable income includes the following:
- Dividends received from qualifying participations
Non-deductible expenses includes the following:
- Dividends benefiting from the participation exemption
- Interest in excess of the thin-capitalization threshold
- Fines and penalties
Carry forward: Yes 5 years, but some restrictions may apply.
Carry back: No
Companies should submit the tax return annually before the 31st May of the following year.
Annual tax returns are established by the company on a self-assessment system.
Companies shall pay monthly or quarterly advance; and the balance must be paid before 31 May of the following year (in the case where fiscal year coincides with calendar year).
Whithholding Taxes (payment to foreign companies)
The local tax rates in China are the following, subject to the provisions of an applicable double tax treaty, if any.
There is no WHT on the profits paid from a branch to its foreign head office.
The general rate of WHT on dividends is 10% of the gross amount.
The general rate of WHT on interest is 10%.
The general rate of WHT on Royalties is 10%.
The general rate of WHT on management fees is 0%.
The general rate of WHT on technical services is 0%.
Generally, capital gains are taxed under the regular CIT as general income.
Note: Capital gains derived by a foreign company are only taxed under a final 10% WHT.
Standard VAT tax rate is 17%
Note: State Council meeting on 28 March 2018 announced that the rate will be reduced to 16%
Reduced tax rates are:
- 11% (among others, essential goods, transportation, construction services,…); State Council meeting on 28 March 2018 announced that the rate will be reduced to 10%
- 6% (among others servicing, including financial services, R&D services, IT services, consulting services, …)
Zero-rated supplies include, subject to certain conditions:
- exports of goods;
Exempt supplies include, subject to certain conditions:
- Certain financial services ;
- Certain insurance services ;
- Training and education ;
Note: exempt transactions differ from zero-rated transactions in that the input VAT associated with exempt transactions is not deductible.
For Chineses companies: in the case where for a tax period, Input VAT exceeds Output VAT, the Chinese company could only carry forward its input VAT credit. However, State Council meeting on 28 March 2018 announced a new pilot program involving input VAT refund instead of input VAT credit.
For non-resident companies: in the case where for a tax period, Input VAT exceeds Output VAT, non-resident companies which have no registered establishment in China may not claim for a refund.
No other specific information of VAT in China.
The general statute of limitation is 3 years and may be extended to 5 years or 10 years in certain cases.
There is foreign exchange control in China. Income and capital could be repatriated subject to compliance with State Administration of Foreign Exchange.
There are thin capitalization rules in China. The interest derived from loans between related parties may not be deductible in case where interest exceeds some ratios (2 times the taxpayer’s net equity for non-financial companies; and 5 times the taxpayer’s net equity for financial companies).
[Furthermore, the interest rate shall comply with the market practice.]
Do not hesitate to share your experience in China with us in the comments below. Any comments are welcome !