ChinaTax Obligations Detailed

Employers operating in China have various tax obligations, encompassing corporate income tax, individual income tax, and social security contributions.

Corporate Income Tax (CIT)

The standard CIT rate is 25%. However, specific industries, like high-tech and encouraged industries, benefit from reduced rates. Some qualified companies enjoy a 15% rate. Small and medium-sized enterprises (SMEs) meeting specific criteria (taxable income under RMB 3 million, less than 300 employees, and total assets under RMB 50 million) may qualify for a reduced 5% rate between January 2022 and December 2027.

Individual Income Tax (IIT)

Employers withhold IIT from employee salaries monthly. Rates are progressive, ranging from 3% to 45%, calculated cumulatively based on annual income bands. The tax year is the calendar year (January 1 to December 31). Monthly IIT returns and payments are due by the 15th of the following month. Annual individual income tax returns are due between March 1 and June 30 of the following year. Non-residents may be eligible for certain deductions and exemptions depending on their circumstances. A non-domiciled individual might be exempt from IIT on foreign-sourced income if certain conditions are met.

Social Security Contributions

Employers contribute to employee social security funds. Rates and caps for pension, medical, unemployment, and work-related injury insurance are set locally and may vary. As of December 31, 2024, typical employee contributions total 10.5%, while employer contributions can range from approximately 21% to 28%, depending on the city and specific regulations. These rates and caps are subject to change based on local regulations.

Value Added Tax (VAT)

The VAT law outlines taxable and non-taxable income and transactions. Non-taxable income includes wages, administrative fees, government funds, and interest income. The VAT rates vary depending on the nature of goods or services provided and are subject to change. The most recent update to the VAT Law was enacted in early January 2025.

This information is current as of February 5, 2025, and might be subject to change. It is recommended to refer to official government resources and consult with tax professionals for the latest updates and specific details.

Employee tax deductions in China are multifaceted, encompassing individual income tax (IIT), social security contributions, and specific deductible allowances.

Individual Income Tax (IIT)

IIT is calculated on a progressive scale, ranging from 3% to 45%, depending on income level. A standard deduction of RMB 60,000 per year is applied. Employers are responsible for withholding IIT monthly and remitting it to the tax authorities within the first 15 days of the following month.

• Comprehensive Income: For resident taxpayers, several income types (wages, independent services, author's remuneration, and royalties) are grouped as "comprehensive income" for annual IIT calculation.

• Special Additional Deductions: These deductions are available for specific expenses like childcare, education, continuing education, serious illness, housing loan interest, rent, and elderly care.

Social Security Contributions

Both employers and employees contribute to social security programs, covering pension, medical, unemployment, and work-related injury. Rates and contribution caps vary by city.

• Examples: As of December 31, 2024, in Shanghai, employees contribute 10.5% and employers contribute between 25.66% and 27.02%. In Beijing, employee contributions are 10.5%, and employer contributions range from 26.5% to 28.2%. Guangzhou sees employee contributions of 10.2%, while employers contribute 21.35% to 22.55%. These figures are subject to change.

Tax-Exempt Fringe Benefits for Foreigners

Certain fringe benefits can be deducted from a foreign employee's salary before calculating IIT. These commonly include housing, meals, laundry, children's education, language training, relocation, business travel, and home visit expenses. These deductions require proper documentation (fapiao) for validation. This preferential treatment is currently valid until the end of 2027.

Other Taxes and Deductions

• VAT: Value Added Tax is generally applicable to goods and services. However, wages, government funds, and interest income are specifically excluded from VAT.
• Urban Construction and Maintenance Tax: This tax, levied at rates of 1%, 5%, or 7% depending on location, is not applicable to VAT or consumption tax paid on imported goods or services provided by overseas individuals.

It is important to note that this information is current as of February 5, 2025, and regulations are subject to change. Consulting with a tax professional or utilizing payroll services is recommended for accurate and up-to-date compliance.

China's Value Added Tax (VAT) system is a consumption-based tax levied on the sale of goods, provision of services, and import of goods.

VAT Rates

• Standard Rate: 13% (most goods and services)
• Reduced Rates: 9% (certain goods and services like transportation, catering, real estate) and 6% (specific sectors such as financial services, IT, and technology).
• Zero Rate: 0% (primarily for exports and cross-border services).
• Simplified Rate: 3% for small-scale taxpayers. Small-scale taxpayers with monthly sales under RMB 100,000 are exempt from VAT until December 31, 2027.

Registration

• Threshold: RMB 100,000 annual taxable sales turnover. Businesses exceeding RMB 5 million must register as general taxpayers, while those below should register as small-scale taxpayers.
• Requirement: Businesses importing to, manufacturing in, or processing goods within China, along with specific exporters, are generally required to register.
• Process: Involves submitting a registration application, business license, and other necessary documents to the local tax bureau after obtaining a tax registration certificate. Non-resident businesses may require a legal representative. Successful registration results in a VAT certificate issuance.

Filing and Payment

• Returns: Frequency depends on sales volume and can be 1-15 days, monthly, or quarterly.
• Deadline: Generally the 15th day of the following month, with exceptions due to public holidays. The STA (State Taxation Administration) releases a circular each year with specific deadlines.
• Method: Electronic filing through the SAT (State Administration of Taxation) website using authorized tax software.

Exemptions

• Specific goods and services are exempt, including self-produced agricultural products, certain medical and educational services, used goods sold by individuals, and certain goods imported for public welfare.

Key Considerations for Non-Resident Businesses

• Non-resident businesses typically qualify as general taxpayers if they sell into China. They should calculate, report, and pay VAT to the Chinese authorities. They cannot register as non-resident traders. Appointing a local representative or assigning the responsibility to their customer are common practices, with forming a local company being an option for direct VAT registration.

VAT Law

• The new VAT law, effective January 1, 2026, consolidates and clarifies existing VAT regulations, aiming to modernize the system and enhance taxpayer rights. Key changes include more specific definitions for taxable transactions and guidelines for non-resident enterprises. The core structure, including the rate system, remains largely unchanged.

Additional Information

• Detailed information on specific exemptions, zero-rated goods, and other specialized VAT treatments can be found in the official VAT Law and related regulations. It's crucial to stay updated on any changes and clarifications issued by the Chinese tax authorities. Consulting with a tax professional is highly recommended for accurate and tailored guidance.

This information is current as of February 5, 2025, and may be subject to change. Please verify current regulations with the latest official sources.

China offers various tax incentives to attract investment and promote specific industries.

Corporate Income Tax (CIT) Incentives

• Standard CIT Rate: The standard rate is 25%. However, various incentives can lower this rate significantly.
• Reduced CIT Rates: Eligible software and integrated circuit (IC) enterprises may qualify for a 10% CIT rate. Qualified high and new technology enterprises (HNTEs), those involved in pollution control, and specific enterprises in designated zones like Lingang and Qianhai can benefit from a 15% rate.
• CIT Exemption: Companies in the agricultural technology sector might be entirely exempt from CIT.
• Small Business Incentives: Small and low-profit enterprises (with annual taxable income up to RMB 3 million and no more than 300 employees) may enjoy a reduced effective CIT rate of 5% on a portion of their taxable income. This is calculated by applying a 20% rate on 25% of the taxable income. Additionally, some levies may be reduced by 50%.

Value-Added Tax (VAT) Incentives

• Reduced VAT Rate: Small-scale taxpayers subject to a 3% VAT rate can benefit from a reduced rate of 1%.
• VAT Exemption: Small-scale taxpayers with monthly sales below RMB 100,000 are exempt from VAT. For overseas individual investors, income from investing in specified Chinese domestic futures products (such as crude oil) may also be exempt.

Individual Income Tax (IIT) Incentives

• Reduced IIT Rate: Some regions offer a reduced effective IIT rate of 15% for qualified foreign talents. Specific criteria and application procedures vary by region.
• IIT Exemptions: Certain subsidies provided to expats, including housing, meal, laundry, relocation, business travel, home visit, language training, and children's education allowances, can be exempt from IIT with proper documentation. Wages of foreign experts working for specific organizations like the World Bank, UN, or under certain aid projects might also be tax-exempt. Interest income on government bonds and financial debentures, as well as awards for certain achievements, are also exempt from IIT. Foreign individuals staying in China for 90 days or less within a tax year might be exempt from IIT on their China-sourced employment income if it's paid by a non-Chinese entity.
• Dividend Income: While generally taxed at 20%, dividend income from shares traded on designated stock exchanges may qualify for a 50% or 100% tax reduction depending on the holding period. Capital gains from transferring such shares might also be exempt.
• Other Exemptions: Interest from bank deposits and income of foreign diplomatic personnel are generally exempt.

Regional Incentives

Many incentives are region-specific. Examples include benefits in the Hainan Free Trade Port, the Greater Bay Area, and the Guangdong-Macao In-Depth Cooperation Zone in Hengqin. Incentives are also available for investments in encouraged industries in western China.

It is important to note that this information is based on the data available as of February 5, 2025, and might be subject to change. It's essential to verify the latest regulations and consult with tax professionals for specific situations. Eligibility criteria, required documentation, and application procedures vary depending on the incentive.