China Tax Advisory
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Foreign Enterprise Income Tax (FEIT)
Tax Rate and Tax Holiday
The standard tax rate for FIEs is 33%, including enterprise income tax rate of 30% and local income tax rate of 3%.
FIEs with a production nature which are scheduled to operate for a period of not less than 10 years shall, from the year in which it begins to make profits, be exempted from income tax in the first and second years and allowed a 50% reduction in the third to fifth years. The enterprise income tax rate for FIEs with a production nature is 15% in the Economic & Technological Development Areas of Costal Open Cities. Further preferential treatments of tax reduction and tax holiday are available for enterprises in high technology or infrastructure.The exemption or reduction of local income tax on FIEs shall be at the discretion of the local government authorities at level of the province, autonomous region or municipality directly under the central government, and may vary by region.
Loss Carry Forward
Losses incurred by enterprises may be carried forward for five years.
Business Tax (BT)
General BT of 3% to 20% is levied on various types of services provided, and on the transfer of intangible assets or sale of immovable properties within China. BT is imposed on gross receipts, including additional fees and charges.Most services, including financial and insurance services, are taxed at 5%.Transportation, postal and telecommunications, construction, cultural, and sports activities are taxed at 3%.Entertainment businesses, 5% to 20%.
BT shall not be incurred on income derived by FIEs from technology transfers, technology development businesses, and related technology consultancies or technical support services, subject to submitting application to and obtaining approval from the competent provincial science and technology authority and tax authorities at the provincial to national level.
Value Added Tax (VAT)
VAT is levied at a general rate of 17% on all units and individuals engaged in the sale of goods; the provision of processing, repairs, and replacement services; and the importation of goods into China. A special rate of 13% applies to some goods such as cereals and oils. The tax rate for exported goods is generally zero, but some exceptions may apply.
Customs Duty
Import duties are levied at general or preferential tariff rates. The dutiable value of imported goods is normally their cost, insurance, and freight value. If the customs authorities are unable, after investigation, to determine the dutiable value of an imported item, they may assess duty on the bases such as the transaction price of an equivalent item on the international market.The import of self-used equipment of FIEs for manufacturing the products listed in the Index of National High and New Technology Products ('Index') and related technology, components and spare parts prescribed by the equipment import contracts, could be exempt from customs duty and import VAT.
Urban Real Estate Tax ('URET')
URET applies to owners of land and buildings in urban areas. Normally, the owner of the building pays the URET. If the land is owned by the state, URET applies to the organizations that operate and manage the buildings on the land. FIEs that rent a building for their own use are not subject to URET.URET is levied on the net book value of the property as determined by a local real estate appraisal committee. For an owner-occupied building, the rate is 1.2% per year on the net book value of the building. If the owner leases out the building, tax is levied instead at a rate of 12% of the rent received.
Withholding Taxes
A foreign enterprise is liable to withholding income tax at a rate of 20% on the gross amount of interest, rentals, royalties, and other income derived from sources in China if it has no establishment there or if, even though it has an establishment in China, the income is not effectively connected with that establishment.
Effective 1 January 2000, the withholding income tax rate was reduced to 10% and China currently does not impose withholding tax on dividends paid to foreign investors of FIEs. The person paying the income must withhold this tax from each payment and, within five days of so doing, submit a withholding tax return to the local tax authorities and remit the tax to the State Treasury. If the tax withheld is not remitted within the prescribed time limit, a surcharge is levied equal to 0.05% of the overdue tax for each day that the tax remains in arrears.
Contact Us
For further queries, please do not hesitate to contact ATAHK at anytime, anywhere by simply calling China hotline at 86-755-82148419, 86-755-82143512, or emailing to info@citilinkia.com