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A Brief of Accounting System in China |
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General |
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Accounting
Law of China |
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Financial
Accounting and Reporting Rules for Enterprises |
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The Accounting
Standards |
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The Accounting
System for Business Enterprises |
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Accounting System for
Small Business Enterprises
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| A
Brief of Taxation in China |
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Preface |
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Tax administration |
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Tax filing
and payment |
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Corporate
income tax for Foreign Investment enterprises and Foreign
enterprises |
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Withholding
tax on payments to non-residents |
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Investment
restrictions on foreign investment |
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Individual
Income Tax |
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Other Taxes
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Outsource
or co source your internal auditing function |
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Internal
auditors’ role in organizations |
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What values
can the internal auditors bring to an organization? |
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Does your
organization need an internal audit function? |
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Why outsource
or co sources your internal audit function?
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Balancing
your human resources. |
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Enhancing internal
audit performance and quality. |
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Enhancing internal
audit performance and quality. |
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Our expertise
and strength |
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• Qualified talents.
• International standards.
• Our unique approach.
• Leading Edge Technology. |
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Preface
This overview is prepared by Chindelity Consultancy for
a quick reference to foreign enterprises or individuals
who are interested in establishing their presence in China.
It is not intended to cover all the taxation issues it
address. When specific issues arise, it is advisable that
it is necessary to refer to the relevant laws, regulations
and professional advices since the law and regulations
are still evolving and practical interpretations are not
always uniform from different tax authorities and tax
officers. Should you have any tax issues for advice, please
contact our Beijing office.
Rainer
Li - Managing Partner
International Practice
Relationships and Transactions |
| Address: |
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Room 2008,Tower
C, Webok Times-Center
Zhongguancun South Road, Haidian District
Beijing 100081, PRC |
| Direct
Line: |
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86-10-88579386 |
| Cell Phone:
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86-10-13601266590 |
| Email: |
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rainer@chindelity.com
office@zhongtianheng.com.cn
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| Web Site: |
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www.chindelity.com |
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Tax administration
The tax administration of foreign investment enterprises(“FIEs”)
and foreign enterprises(“FEs”) are governed
separately by State Tax Bureau and the local tax bureaux
of the local governments. The provincial and municipal
branch office of the State Tax Bureau are responsible
for the collection and administration of value-added tax,
consumption tax and income tax for FIEs and FEs and whereas
local tax bureaux are responsible for collecting business
tax, individual income tax (“IIT”)and other
local taxes.
Tax filing and payment
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Corporate income
tax
Corporate income tax is prepaid on a quarterly
basis and a final assessment is made annually.
Prepayments are due 15 days after the end of each
quarter and a final settlement is due within five
months after the end of one year.
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Individual income tax
IIT is withheld from salaries by employers and paid
to the tax bureau on a monthly basis. The expatriate
employees whose payroll is borne by a China employer
is also subject to individual income tax on monthly
basis. IIT returns are filed within seven days following
the end of each month. |
Corporate income tax for Foreign Investment
enterprises and Foreign enterprises
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Definition of
FIE and FE
FIEs includes equity joint ventures, cooperative
joint ventures and wholly foreign-owned enterprises;
FEs include foreign companies with China establishments
and foreign companies without China establishment
but which derive income sourced from China.
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Tax rate
FIEs
and FEs are taxed on profits at the flat rate
of 33%, which incorporates a national tax of 30%
and a local tax of 3%. However, China provides
many tax incentives to FIEs and FEs subject to
certain qualifications and conditions.
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Incentives to FIEs and FEs
Some incentives apply only to production enterprises.
Foreign enterprises engaged in commerce, finance,
insurance and service industries are generally not
considered as production enterprises.
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Economic and Technological
Development Zones(“ETDZs”)
Productive FIEs in these zones are also subject
to a tax rate of 15%.
Hi-Tech Industry Development Zones(“HTIDZs”)
FIEs incorporated in HTIDZs are subject to
a tax rate of 15% should they have been approved
as hi tech enterprises by relevant authorities.
Bonded Zones, Export Processing Zones,
Shanghai Pudong New Area, National Tourism
Areas and other areas
FIEs incorporated in these zones and areas
are also eligible for certain concessary tax
rate and tax holidays.
Tax holidays
Production FIEs are eligible for tax exempt
for the first two years and a 50% reduction
in corporate income tax for the subsequent
three years should their operating period
is more than 10 years.
Chinese- foreign joint ventures qualified
as Hi-Tech Enterprises with a operating period
of over 10 years are also eligible for the
tax holiday mentioned above.
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Production FIEs are eligible for
tax exempt for the first two years and a 50% reduction
in corporate income tax for the subsequent three
years should their operating period is more than
10 years.
Chinese- foreign joint ventures qualified as Hi-Tech
Enterprises with a operating period of over 10 years
are also eligible for the tax holiday mentioned
above.
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Special deductions and other
issues
Taxable income is defined as the amount remaining
from its gross income in a tax year after allowable
expenses and losses have been deducted.
All costs are allowable except those expressly identified
as non-deductible.
Special regulations applies to the following areas
Depreciation, intangible assets, pre-operating expense,
management fees incurred by overseas companies,
interests on loans, entertainment, foreign social
insurance premiums, bad debts, inventory valuation,
loss carryovers, treatment of dividends and related
party transactions. |
Withholding tax on payments to non-residents
Dividends paid to foreign investors are currently
exempt for withholding tax in China. A concessionary
rate of 10% has generally been applied to interest,
rental, royalties and other incomes.
Investment restrictions on foreign investment
To promote foreign investment, capital–intensive
and technology intensive manufacturing industries,
and those for the development of infrasture facilities
are encouraged by China governments.
For tax holiday and incentive purpose, the proportion
of investment contributed by foreign entities should
be over 25%.
FIEs are encouraged, permitted, restricted or prohibited
in different industry sectors. A detailed Foreign
Investment Industrial Guidance Catalogue is issued
by China relevant authorities which sets out the
parameters for permitted foreign investment.
Individual Income Tax |
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Residence and determination
of taxable income
China has adopted a resident approach in assessing
individual income tax. Generally is chargeable to
the IIT on his worldwide income. Whereas foreign
nationals are chargeable to IIT depending on their
period of residence in China as well as other facts.
Foreign nationals residing in China for less than
one year are subject to tax only on China sourced
income. Remuneration from foreign employers to individual
working in China is tax exempt if he resides in
China less than 90 days in a calendar year, provided
the remuneration is not borne by an establishment
in China. The 90 day period can be extended to 183
days to individuals who is entitled to protection
under treaty arrangement with China.
Individuals who are not domiciled in China but reside
in China between one to five years may, with approval,
pay tax only on their China sourced income and Non-China
sourced income, payment of which is borne by China
establishments. Commencing from the sixth year,
their worldwide income will be subject to tax. |
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Personal income
tax rate
The applicable tax rate for IIT ranged from 5% to
45%. Monthly taxable income is computed after a
standard monthly deduction of Rmb4000 for individuals
not domiciled in China.
A flat 20% tax (withheld at source) applied to income
from compensations for personal service, royalties,
interest, dividends, bonues and the lease of real
properties. However, taxable income from personal
services, royalties or lease of property is net
of s standard deduction for expense( 20%, subject
to a minimum of Rmb800 per payment). |
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Employment Benefits
Certain employment benefits are specially treated
as not being taxable under the IIT law.
Employee housing cost
Cost of a motor vehicle for personal use
Home leave fares
Employee relocation cost
Reimbursement of certain meals, laundry and children’s
education costs etc. |
Other Taxes
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Value added tax (“VAT”)
VAT applies to FIEs, FEs and domestic enterprises
engaged in the selling or importation of goods in
China, or in the provision of processing, repairing
and replacement services in China.
A 17% tax rate is applied to the added value of
products at the stages of importation and sales.
Some goods, such as grains, vegetable oils, fertilizers,
agricultural machinery, books and utilities are
taxed at a 13% rate. |
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Business Tax
A business tax applies instead of VAT to the provision
of services including transportation, insurance,
posts and telecommunications, real estate broking,
construction, entertainment and the assigning of
intangible assets such as patents, trade marks,
copyrights and land use rights.
The business tax rate ranges from 3% to 5% except
for the entertainment business which is taxed at
5-20%. |
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Consumption tax, Land appreciation
tax, stamp tax, urban real estate tax, Deed tax
FIEs and FEs also applies to these taxation depending
on its business activities.
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