Foreign companies registered in China are subject to a large number of taxes in the same way as domestic companies. Companies not incorporated in mainland China but with their effective management therein will also be subject to the same tax regime. The most relevant taxes are:
- Corporate Income Tax (CIT): standard tax on income, with the statutory tax rate at 25%. Small scale and low profit enterprises* enjoy a preferential CIT policy from 1 January 2022 to 31 December 2024:
- Annual turnover below CNY 1 million (around EUR 130k): 20% CIT rate calculated only on 12.5% of their turnover.
- Annual turnover above CNY 1 million (around EUR 130k) but below CNY 3 million (around EUR 391k): 20% CIT rate calculated only on 25% of their turnover. Other preferential CIT rates (15%) may be applied for companies operating in sectors encouraged by the Chinese government, with local R&D operations and IP (High- and New-Technology Enterprise status), software and integrated circuit enterprises, or investing in priority sectors in central and western regions.
- Value-added Tax (VAT): standard tax on transactions, it applies as a percentage of the invoiced amount for goods and services. The standard VAT rate is 13%, but reduced rates of 9% and 6% also apply for certain sectors). Micro, small and medium-sized enterprises may register as “Small scale taxpayer”, for which a flat 3% VAT rate is applied (see FAQ on VAT).
- Consumption Tax (CT): sales-based tax, applicable to products that are harmful to health (e.g. tobacco or alcohol), luxury products (e.g. jewellery and cosmetics), as well as high-end products (e.g. passenger cars, boats, etc.) – either imported or manufactured in China. The specific rate of the CT varies depending on the type of product (ranging from 1% to 56%).
- Stamp Tax: levied on various contracts, licenses and accounting books. It varies from 0.005% to 0.1% depending on the contract type.
- Withholding Income Tax: applied to interests, rental, royalties and dividends paid to enterprises non residing in China (e.g. parent company in Europe), usually 10%.
Other common taxes include the Real Estate Tax, the Land Value Appreciation Tax, the Resources Tax, etc.
For more details on the type and amount of taxes that foreign companies need to pay in China, see a dedicated guide published by the EU SME Centre in 2016: https://www.eusmecentre.org.cn/guideline/understanding-company-administrative-and-reporting-rules-china.
* Small scale and low profit enterprises are defined as enterprises with an annual turnover below CNY 3 million, less than 300 employees, and total asset value below CNY 50 million.