Taxation Policies     

1.  Types of Tax:

According to the law, a foreign-invested enterprise in China shall pay enterprise income tax, value-added tax, business tax, consumption tax, urban house tax, vehicle and vessel plate-use tax. According to customs tariff regulations, customs duties, value-added tax, and consumption tax are levied on the goods imported and exported. In addition, withholding tax is withheld on the royalties, dividends, interest, rentals, and other earnings sent overseas. Expatriates of the foreign-invested enterprises and Chinese shall pay individual income tax in accordance with the law.

2.  Preferential Policies

A foreign-invested enterprise shall pay enterprise income tax according to The Income Tax Law of the People's Republic of China Concerning Foreign-invested Enterprises and Foreign Enterprises. A production-oriented foreign-invested enterprise in DEDA pays enterprise income tax at an after-reduction rate of 24%. A production-oriented foreign-funded enterprise of which the operational period is over 10 years is granted an exemption from income tax for the first and second year and a reduction in income tax by half from the third to fifth year, i.e. a tax rate of 12%, commencing in the year in which the enterprise begins to make profits. In case the enterprise is advanced-technology-oriented, it is granted a reduction in income tax for 3 more years (after-reduction rate is 12%) as long as, according to state regulations, it remains advanced-technology-oriented after the exemption-reduction period is over. In case the enterprise is export-oriented, it pays income tax at the rate of 10% after reduction as long as, according to state regulations, its export value of the year equals or exceeds 70% of its output value of the same year after the exemption-reduction period is over.

A production-oriented foreign-funded enterprise within DEDA is exempted from local income tax.

Post-reinvestment Tax Refund

An investor from a foreign country or Hong Kong, Macao, or Taiwan may, with examination and approval of the taxation authorities, obtain a 40% refund of the income tax he paid on the part of the profits to be used as reinvestment as long as he reinvests that part of the profits, which he gained from his enterprise in DEDA, in the same enterprise or in the establishment of a new enterprise in DEDA, whose operation covers a period of not less than 5 years', he may, with examination and approval of the taxation authorities, obtain a full refund of the income tax he paid on the part of the profits to be used as reinvestment as long as he reinvests that part of the profits in an export-oriented enterprise or an advanced-technology-oriented enterprise, whose operation covers a period of not less than 5 years

Value-added Tax

There are three levels of value-added tax rates. An organization or individual who sells merchandise, imports goods, or provides processing, repairing, or assembling service shall pay value-added tax at a rate of 17%. A taxpayer shall pay value-added tax at a rate of 13% in selling merchandise or importing goods as follows: grain, vegetable cooking oil, coal gas, natural gas, household coal products, books, newspapers and magazine. A taxpayer shall pay value-added tax at a rate of O% in exporting goods, with the exception of those as otherwise stipulated by the State Council. An organization or individual dealing in goods production or provision of labor service liable for tax with a total annual sales sum less than RMB 1,000,000 yuan and an organization or individual dealing in wholesale or retailing of goods with a total annual sales sum less than RMB 1,800,000 yuan, defined by the taxation authorities as small-sized value-added tax payer, shall pay value-added tax at a rate of 6%.

Exporting products of a foreign-invested enterprise, with the exception of petroleum, refined oil and those as otherwise stipulated by the State Council, shall be exempted of value-added tax.

Tax-exemption policy is applicable to the foreign-invested enterprises engaged in goods export (including general trade export, processing of imported materials, export entrusted to enterprises engaged in foreign trade) established before January 1, 1994, while the policy of tax exemption, countervailing, and refunding of the export goods is applicable to foreign-invested enterprises established after January 1, 1994.

Consumption Tax

As for consumption tax, there are 11 tax categories and 25 tax rates (tax amounts), ranging for the lowest 3% to the highest 45%. In production, consumption shall be levied in line with the price. The consumption tax of yellow rice wine, beer, gasoline, and diesel oil shall be levied in line with the quantity at a fixed tax amount. Consumer goods for export, with the exception of those as otherwise stipulated by the State Council, shall be exempted of consumption tax.

 Business Tax

There are 9 levels of business tax rates, ranging from the lowest 3% (traffic and transportation) to the highest (entertainment). An organization or individual engaged in entertainment trade in Tianjin shall be levied a business tax at a temporary rate of 10%.

 Urban House Tax

The taxpayer shall be the owner or the tenant (agent or user when unable to identify) of the house.

A foreign-invested enterprise and its expatriates shall pay urban house tax at a rate of 1.2% (calculated on the basis of the original value of the house) according to the remainder after a one-time 30% deduction from the original value of the house.

 Stamp Tax

Taxable certificates: various legal contracts such as purchasing and marketing contract, processing contract, construction project contract, property leasing contract, goods transportation contract, warehouse storage contract, loan contract, property insurance contract, technical contract, and any other certificates bear the characteristics of a legal contract; property ownership assignment certificate, business account books, rights, licenses and other certificates defined as taxable certificates by the Ministry of Finance.

 Vehicle and Vessel Plate-Use Tax

The taxpayer of vehicle and vessel plate-use tax shall be the users of vehicles and vessels.

The tax rate of the ships and trucks shall be fixed in line with the tonnage, and the tax rate of passenger vehicle and vessel shall be fixed in line with the type or the seats.

Truck: 48 yuan per tonnage per year

Passenger car: 120-163 yuan per year according to the seats of the car

Motorcycle: 20-48 yuan per year

Non-motor vehicle: 4-30 yuan per year

Individual Income Tax

An individual who has resided in China for less than a year shall, according to law, pay individual income tax on his income from Inside China. An individual who has resided in China for more than a year but less than 5 years year shall, according to law, pay individual income tax on his income from inside and outside China. An individual who has resided in China for more than five years shall pay individual income tax on all his income from outside China from the sixth year he resides in China.

Scope of Taxable Incomes:

Salary and wage; labor service reward; franchise use fee; interest, stock dividend, bonus; property leasing income; property assignment income; and other incomes defined as taxable incomes by the Ministry of Finance.

An expatriate who works or provides labor service in China but resides in China consecutively or accumulatively for no longer than 90 days (183 days for those whose native country has reached an taxation agreement with China) within a tax year is exempted from personal income paid by his employer outside China.

Labor service reward, franchise use fee, interest, stock dividend, bonus, property leasing income, property assignment income; and other incomes defined as taxable incomes by the Ministry of Finance shall be levied individual income tax at a tax rate of 20%.

Individual Income Tax Rate (Applicable to wage and salary)

Note: The monthly sum liable for tax in the above form refers to the remainder of subtraction from the monthly income of an individual RMB 4,000 yuan (for foreigners) or RMB 1,000 yuan (for the Chinese citizens).