China FIE/ FICE Taxation Policies
Hotline: 86-755-82148419 Email: susiehu@citilinkia.com
The corporate income tax, corporation tax, and company tax interchangeably refer to the percentage paid to the government by a company of its production and operations. This taxation expense is necessary for any entity to operate legally in a jurisdiction.
New Foreign Tax Law
All registered corporations in the country – both foreign and domestic – are subject to China’s corporate tax law. After continuous development in the world trade economy, a host of foreign-funded enterprises ventures into China.
To separate foreign entities from domestic entities, and also to encourage foreign investment, China has what many call “preferential” tax policies for non-Chinese companies and recently, the local jurisdiction announced a number of changes.
Here’s a summary of some of the most important bits
Income Tax Exemption
For foreign investors who stay in China, there’s a 3% personal income tax exemption available.
Meaning, if you run a company in China, you don’t have to pay the full amount of the personal income tax and you will get a 3% off if your company is already paying corporation tax in the country. You might need to talk to your accountant to get this allowance.
Tax Holidays for Long-term Enterprises
For foreign companies that have been operating in China for longer durations, the government will exercise reduced corporation tax rates.
For instance, for any non-Chinese entities – such as a WFOE, JV, or RO – that have been operational for longer than 15 years in the country, the government will exempt company tax for 1~5 years that follow after the 15-year milestone is reached.
Companies might need to elect for this exemption and it will be granted on a case-by-case basis – meaning that, this exemption is not available to all types of companies.
Service Provider Companies
If you operate as a service provider company and have invested over USD $5 million in China, you will get a one-year tax-free period after 10 years of operation.
The first year after the 10-year mark is tax-free, and your tax payments will be halved for the subsequent 2 years. Again, you might need to elect with the tax bureau to get this exemption.
Special Economic Zone Trading Companies
Companies registered in Special Economic Zones (also called Free Trade Zones) can also exercise a one-year tax holiday.
In this case, the companies must have an initial investment exceeding CNY ¥100 million and more than 10 years of operations. The tax exemption is the same – 100% tax freedom for one year and a half tax payments for the subsequent 2 years after being in business for 10 years.
High-Tech Companies
Companies that are involved in high-end technology – that’s new and innovative, and are successfully qualified as “high-tech” by the Chinese government, can get up to two years of tax-free operation in China. Those that qualify can also get half tax-rates for up to six years of operation.
After the tax exemption period expires, these companies will pay corporation tax at 10% if the export value of their product reaches 70% of what it was in the initial stages.
High-end Intellectual Property Owners
Enterprises that own a “high-tech” intellectual property can get up to five years of 0% corporation tax in China. After the five-year term expires, the tax rate will be halved for a subsequent three-year period.
These companies must qualify as truly high-tech and must own an independent intellectual property to an innovative and “transformational” product, as per the government.
Moreover, after such an enterprise launches a qualifying project or product in the country, it can get a tax exemption on its profits (made from the sale of the product) for three years – even if they choose not to exercise the “High-end Intellectual Property” incentive before the launch.
Contact Us
For further inquiries about investment in China, please do not hesitate to contact us at anytime anywhere by simply calling China hotline at 86-755-82148419, or emailing to susiehu@citilinkia.com.