Taxes Required to be Paid by Foreign-funded Enterprises
Value Added Tax (VAT)|
There are 3 tiers of rates for VAT:
For sales or import of goods and providing service of processing and repair, the tax rate is 17%.
For sales or import of grain, edible oil, coal gas, natural gas, coal products for civil use, books,newspapers, magazines, etc., the tax rate is 13%.
For export goods, except for those that the State Council has special provisions, the tax rate is 0.
For enterprises and individuals engaged in production or providing taxable labor service with an annual sales volume under RMB 1 million, those engaged in wholesale and retailing with an annual sales volume under RMB 1.8 million, and those designated by the tax authority as small VAT payers, the tax rate is 6%.
Consumption tax has in all 11 tax items and 25 tax rates (tax volumes), from the lowest 3% to the highest 5%. The tax rate should be decided by prices in the production process while for yellow rice wine, beer, petrol and diesel oil, the tax volume is decided by its quantity. The taxable export consumer goods, except those subject to special State provisions, should be exempt from consumption tax.
There are 9 tax business rates, ranging from 3% (communications and transportation industry) to 20% (recreation industry). The temporary tax rate for recreation industry in Beijing is 10%.
In the administrative area of Beijing, the tax rate of foreign-funded enterprises of a production nature with an operation term over 10 years is reduced to 24%. They shall be exempt from this tax in the first two profitable years and allowed a 50% reduction in the following three years. Foreign-funded enterprises engaged in farming, forestry and husbandry may apply to the State Tax Bureau for a 15% to 30% reduction in income tax for 10 years after the expiration of the two-year income tax exemption and the three-year reduction period.
Foreign-funded production enterprises located in Beijing Economic and Technological Development Zone shall be levied at a reduced rate of 15%, and shall be exempt from this tax for two years starting from its first profitable year and allowed a reduction of 50% of this tax (7.5%) in the next three years.
Hi-tech enterprises set up in Beijing Hi-tech Industry Experimental Zone shall be exempt from this tax for three years from the date it gets the business license and allowed a reduction of 50% of this tax (7.5%) in the next three years.
After application off the enterprise and approval from the tax authority, the elected technologically advanced enterprises may enjoy extension for another three years of 50% income tax reduction after the expiration of its exemption and reduction period of income tax. But if the reduced rate is lower than 10%, the income tax should be levied at the rate of 10%. After the expiration of the exemption and reduction period of income tax, export-oriented enterprises whose annual export volume amounts to 70% or higher of the annual output value, may enjoy 50% income tax reduction for that year.
Foreign-funded production enterprise which operate technology intensive projects, with a foreign investment over US$30 million which need a long period to retrieve, and which are engaged in projects of energy, communications and construction of harbor, may enjoy a reduced income tax rate of 15%, with the approval of the State Tax Bureau.
Foreign investors in a foreign- funded enterprise, who reinvest the net profits directly in other enterprises in China for an operation term of no less than five years, shall obtain a refund of 40% of the income tax paid on the amount of reinvestment. Foreign investors who reinvest their directly owned net profits in the technologically advanced enterprises or export-oriented enterprises for an operation term no less than five years, may obtain a refund of all the income tax paid on the amount of reinvestment.
New technology enterprises, technologically advanced enterprises and export-oriented enterprises are exempt from local income tax. Foreign-funded production enterprises with an operation term over 10 years shall enjoy exemption from local income tax in the first five profitable years and a 50% reduction in the following five years.
Land Appreciation Tax
Land Appreciation Tax has four levels of progressive tax rate.
The surplus amount of the Land Appreciation Tax payer's income from real estate transfer subtracting the fixed amount of deduction is the volume of increased value.
- For the part of increased value that does not surpass 50% of the deduction of fixed items, the tax rate is 30%.
- For the part of increased value that surpasses 50% but no more than 100% of the deduction of fixed items, the tax rate is 40%
- For the part of increased value that surpasses 100% but no more than 200% of the deduction of fixed items, the tax rate is 50%.
- For the part of increased value that surpasses 200% of the deduction of fixed items, the tax rate is 60%.
Fixed items for deduction:
* The amount of money paid for the right to use the land; the development cost of the land; the cost and fees for new house building and the accessory equipment, or the assessed value for the old houses and buildings; the relevant taxes on real estate transfer as required by the Ministry of Finance.
In the calculation of Land Appreciation Tax, for expenses related to real estate development, such as sales expenses, financial expenses, management expense situations, the deduction of real estate development expenses should be 10% of the total real estate cost.
Tax on Building Property
The owner or renter (agent and user in case it is unidentifiable) is the tax payer.
The building property of foreign-funded enterprises and of foreign personnel should be levied quarterly at an annual tax rate of 1.2%. And they may enjoy a 30% reduction of assessed tax.
The taxable instruments:
Contracts or agreements on buying and selling, processing, building projects, leasing, goods transport, storage, loans, property insurance and technology contracts and vouchers of contract .
Instruments of property transfer, business account books, rights, certificates and licenses;
other instruments that the Ministry of Finance deems necessary to be taxed.
License Fare of Vehicles and Vessel
Users of automobiles and vessels as tax payers. Tax rate: the rate for trucks and ships is decided by their tonnage while that for passenger buses and cars by their types and number of seats.
Individual Income Tax
- Trucks RMB 48 yuan per ton per year
- Buses and cars RMB 120-163 yuan per year (according to the number of seats)
- Motor bicycles RMB 20-48 yuan per year
- None-motor vehicles RMB 4-30 yuan per year
For individuals residing in China for less than one year, individual income tax shall belevied only on the income gained within China.
For individuals residing in China over one year but less than five years, individual income tax shall be levied on the income gained within or outside China.
For individuals residing in China over five years, individual total income from outside China from the sixth year.
Individual income tax shall be levied on the following categories of income:
Wages and salaries; compensation of personal services, royalties; interest, dividends and bonus; income from property leasing; income from property transfer; other kinds of income specified as taxable by the Ministry of Finance.
Foreign personnel working and performing personal services within China, whose continuous or accumulated residence in China does not exceed 90 days in one Gregorian calendar year (183 days for those from countries with which China has taxation agreement), shall be exempt from individual income tax, for income from salaries and wages obtained from employers outside China.
Income from wages and salaries is taxed at 8 progressive rates, ranging from 5% to 45%. One's monthly income minus RMB 4,000 yuan is his taxable amount of income.
Income from compensation for personal services, royalties, interest, dividends, bonus, lease of property, transfer of property, and other kinds of income shall be taxed at a proportional rate of 20%.
Import: Starting from April 1, 1996, the import of equipment and raw materials purchased by newly established foreign-funded enterprises within the stipulatedtotal investment is subject to import tariff and import link tax. For foreign-funded enterprises founded before March 31, 1996, import of goods within the stipulated total investment and approved additional investment is exempt from import duty during the grace period (before Dec. 31, 1997, for projects with total investment above US$30 million; before Dec. 31, 1996, for projects with total investment less than US$30 million). Tax should be levied accordingly for their import beyond total investment. If the import can not be finished within the grace period, the State Council may extend the grace period upon the request of Moftec.
Export: Export products produced by the foreign-funded enterprise itself, except those prohibited from exportation by the State and those subject to other State regulations, shall be exempt from export tariff.
Bonded commodities: The necessary imports for foreign- funded firms to produce exports, such as raw materials, fuel, parts and components, accessories or packaging materials are regarded by the custom house as bonded commodities.