China Value Added Tax
- The standard rate of VAT in China is 17%. There is a reduced rate of 13% that applies to products such as books and types of oils.
- Exports from China are not subject to value added tax.
- Price tags (when there is one) already include the VAT.
- Small businesses with a turnover of less than the legally defined limit pay value added tax at 4%-6%.
China Business Tax
- This non-recoverable turnover tax is imposed in China instead of VAT on businesses other than manufacturing businesses, including most services and transfer of intangibles and immovable property.
- The business tax is imposed when either the service supplier or the customer are located in China.
- BT returns are to be filed monthly.
- The tax is 3% – 20% (financial services and most of the cases is 5%).
China Consumption Tax
- The tax on luxury goods, including alcohol, cosmetics, jewelry, yachts and wooden floor panels. It has to be paid by all enterprises that import, manufacture or process these goods. The relevant rates are 3%-45%.
- Consumption tax returns are filed monthly.
Urban Real Estate Tax in China
- A tax of 1.2% is imposed on owners of real estate, according to the value of the real estate.
- The tax on leased real estate is 12% – 18%.
- Tax of 0.005 to 0.1% on contracts, property leasing, property insurance, certificates and licenses and other specified documents.
- Foreign enterprises taking profits out of China in the form of dividends are subject to a 10 percent withholding tax. This is levied on overseas companies providing services to China-based business.
- Foreign enterprises without establishments in China have to pay withholding tax based on income from:
- royalties generated by providing patent rights, proprietary technology, trademark rights, copyrights and other such rights for use in China
- interest derived from inside China on deposits, loans, bonds, advance payments made provisionally on another person’s behalf or on deferred payments
- rentals from assets leased to and used by parties in China
- earnings from assignment of assets in China, including buildings, structures and their auxiliary facilities and land use rights
- any other income derived inside China which may be deemed as taxable by the Ministry of Finance.
Taxes on Representative Offices
Representative offices have to pay tax even though they don’t trade or earn income. Any remittances from the home country to fund the office are regarded as income. Relevant taxes are:
- Business Tax on the total monthly overheads
- Corporate Income Tax
There are four representative office tax payment methods:
- Pay tax according to actual book keeping, such as law firm and accounting firm.
- Cost-plus method, which means the income of the representative office will be calculated according to the expenses spent in current period. Most representative offices use this method.
- Actual income method where the representative office declares income to the tax bureau if income is occurred. If no income, declare zero tax to the tax authority.
- Non-profit organization where the representative office declares zero tax.