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What are the general taxation requirements for foreign companies in China?

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%. However, small scale and low profit enterprises * enjoy a preferential CIT policy from 1 January 2022 to 31 December 2024:
    • SMEs with an annual turnover below CNY 1 million (around EUR 126k): 20% CIT rate calculated only on 12.5% of their turnover;
    • SMEs with an annual turnover above CNY 1 million (around EUR 126k) but below CNY 3 million (around EUR 378k): 20% CIT rate calculated only on 25% of their turnover;
  • Other preferential CIT rates (e.g. 15%, 175% super deductions, etc.) may be applied for companies operating in sectors particularly encouraged by the Chinese government, e.g. companies with High- and New-Technology Enterprise (HNTE) 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 (respectively for retail, hotel, entertainment, transports and logistics; and for financial services, consulting, IT, insurance, etc.). Micro, small and medium-sized enterprises may register as ‘Small scale tax payer’, for which a flat 3% VAT rate is applied (see relevant FAQ below).
  • 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 payments done by China-based entities to non-resident enterprises (e.g. parent company in Europe). It is a concessionary 10% tax applicable to interests, rental, royalties and dividends.

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 (小型微利企业)are defined as enterprises with an annual turnover below CNY 3 million, less than 300 employees, and total asset value below CNY 50 million.

Tax, finance and accounting