Local and foreign companies operating in China should understand the local tax system and how it works. Companies should conduct tax fillings in China based on various legislation rules. In this article, we’ll take you through categories of tax fillings China laws so that you can understand the taxes you should pay for your company.
Corporate Income Tax (CIT)
The CIT is levied to local and foreign companies based on their net income in a financial year. Companies are expected to pay CIT quarterly or annually, but companies can make adjustments to pay the tax in the subsequent fiscal year. Domestic and foreign companies operating in China should pay a standard CIT rate of 25%. For non-resident companies, the CIT rate is set at 20%. Similarly, small and low-profit companies should pay a CIT rate of 20%. However, there are different rates for small and low-profit companies paying CIT. The rates are as follows.
Companies with annual profit that’s below RMB one million should pay a CIT rate of 2.5%.
Companies with an annual profit between RMB one million and three million should pay a CIT rate of 10%.
Any company whose annual profit exceeds RMB 3 million should pay a CIT rate of 25%.
Small and Low-Profit Companies in China enjoy tax relief policies in the form of preferential CIT rates. Here’s a list of tax relief policies that these companies will benefit from when conducting their tax fillings in China.
Companies determined as “high-tech” by the Chinese tax authorities can pay a standard CIT rate of 15%
Key software and integrated circuits design companies in China can enjoy a reduced CIT rate of 10%.
Companies that engage in encouraged industries in the western regions of China will enjoy a standard CIT rate of 15%.
Withholding CIT tax is imposed on foreign companies operating in China that generate income from China. The tax is levied on dividends, interests, rents, and royalties derived in China. When foreign companies are paying Withholding CIT tax, the tax will be withheld before payment is made. The tax rate is set at 10% after a reduction from 20%.
Value Added Tax (VAT)
VAT will vary depending on the industry involved. VAT may have rates ranging from 3%, 6%, 9%, and 13%. Consider understanding tax fillings in China to know the VAT tax rates you should pay for your company.
Tax filings in China are a critical area for companies offering different products and services. Thus, local and foreign companies should conduct tax filings following the local tax system.
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