August 2011 – Overview of China’s Tax System

China’s tax revenue is the most important revenue source for the China government. In 2009, China’s tax revenue is 6.31 trillion Chinese Yuan(US$ 924 Billion); In 2010, China’s tax revenues increases 22.6 percent to 7.74 trillion yuan (1.17 trillion U.S. dollars) compared to 2009.

The Ministry of Finance is the government agency in charge of tax policy (http://www.mof.gov.cn ); The State Administration of Taxation is in charge of tax collection (http://www.chinatax.gov.cn/n6669073/index.html).

China’s taxation system is very different from the U.S. In addition, there are many different types of taxes in China. With the rapid development of economy, China became one of the most prosperous markets in the world. Foreign investors flock into China and try to grab all opportunities in this new market. In order to operate the business in a safe way and more cost-efficiently, foreign investors should have basic knowledge of China tax system and different types of taxes before making investment decision.

Brief introduction of China Tax

Under the current tax system in China, there are about 20 types of taxes, which can be divided into 8 categories according to their nature and function:

- Turnover taxes;

- Income taxes;

- Resource taxes;

- Tax on specific objectives;

- Property taxes;

- Behavior taxes;

- Custom duties;

- Tax levied by finance department

Types Of taxes and major taxes applicable to foreigners:

1. Turnover tax:

-Value added taxes: Applies to the sale of goods, and the provision of services. The standard rate is 17% of “added-value” with some exceptions;

- Consumption taxes: Tax on sales price or sales volume of the production, processing or importation of 14 categories of consumable goods;

- Business taxes: Taxes on provision of services transfer of intangible properties and the sale of real estate properties. Tax rates range from 3% to 20%;

2. Income tax:

- Enterprise tax: The standard rate is 25%;

- Income tax on enterprises with foreign investment and foreign enterprises: The standard rate is 33%.

- Individual tax: The rate range from 5% to 45%

3. Resource tax:

The tax is the charge to the use of state-owned natural resources.

- Resource tax;

- Urban and Township land use tax

 4. Tax on specific objectives:

The taxes are levied on the gains realized from real property transactions at progressive rates ranging from 30% to 60%.

- City maintenance and construction tax;

- Farmland Occupation tax;

- Land appreciation tax;

- Vehicle acquisition tax.

5. Property tax:

This is the real estate tax levied on the owners, users or custodians of house and buildings. The rates range from 1.2% to 12%.

- House property tax;

- Urban real estate tax;

 6. Behavior tax:

These taxes levied on specific behavior.

- Vehicle and vessel usage tax;

- Motor vehicle acquisition tax;

- Stamp tax:a tax levied on enterprises or individuals who execute or receive “specified documentation” in China. The tax rates range from 0.005% to 0.1%.

7. Custom duties:

Duties are imposed on the goods imported into China. The rates varies for different original country of imported goods. Normally it’s taxed on the CIF value.

 8. Tax levied by finance department:

- Deed tax: The taxpayers of deed tax are transferees (including enterprises, and individual) on the ownership of land use or real properties which transferred in China.

In conclusion, the above different types of taxes in China including the major taxes applicable to foreigners (including individuals and business).  China’s tax and law system are very different from U.S., so foreign investors should consult with experienced professionals to avoid excessive taxes and also avoid legal conflict in China.

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