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Should I pay taxes in China if my company, based in Europe, provides services to a client based in mainland China?

Non-resident enterprises (i.e. companies based in Europe) are taxed on Chinese-sourced income. Services provided by these companies to China-based clients will be considered by Chinese tax authorities as income generated in China: Corporate Income Tax (generally 10%), VAT (6%) and surcharges (generally 0.72%) will need to be paid on the transaction. This will be done by the Chinese client on a withholding basis. In general, the amount withhold cannot be recovered, though may be deducted from the tax payable in the home country.

In order to avoid receiving smaller amounts than expected, European service providers should clearly indicate in the service contract that the amount payable by the Chinese client is net of taxes, or alternatively increase pricing in advance.