​Corporate Taxation

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China imposes several types of taxes on companies, with Corporate Income Tax (CIT) being the most significant. Chinese tax system is governed by the State Taxation Administration (STA) and local tax bureaus.

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The taxes on companies are:

• Corporate Income Tax (CIT): 25% standard rate.

• Value-Added Tax (VAT): Ranges from 6% to 13% depending on goods/services.

• Withholding Tax: 10% on dividends, royalties, and interest paid to non-residents.

• Other Taxes: Business tax, environmental protection tax, stamp duty, etc.

Corporate Income Tax (CIT)

• Standard Rate:

  • 25% on worldwide income for resident companies.

• Reduced Rates:

  • 15% for qualified high-tech enterprises.

  • 20% for small and low-profit enterprises.

• Taxable Income:

  • Calculated as total revenue minus allowable deductions, losses, and exemptions.

  • Common deductions include operating expenses, wages, depreciation, and interest payments.

Value-Added Tax (VAT)

• Overview:

  • A major source of revenue, applied to the sale of goods and services.

• Rates:

  • 13% for general goods, 9% for certain goods/services, 6% for modern services.

• Filing:

  • Monthly or quarterly filing depending on the size of the business.

  • Input VAT can be credited against output VAT.

Withholding Tax

• Applicability:

  • Levied on non-resident companies earning income from China.

• Rate:

  • 10% standard rate, can be reduced under Double Taxation Agreements (DTAs).

• Types of Income:

  • Dividends, royalties, interest, and capital gains.

Main Tax Obligations During the Financial Year

a. Monthly/Quarterly Tax Filings

• Corporate Income Tax (CIT) Advance Payments:

  • Based on quarterly profit estimates, with a final reconciliation at year-end.

• VAT and Additional Taxes:

  • Monthly or quarterly returns must be filed.

• Withholding Tax Returns:

  • Filed when payments subject to withholding tax are made.

b. Annual Tax Return and Final Settlement

• Annual CIT Return:

  • Must be filed by May 31st of the following year.

  • Reconciliation of quarterly payments with actual income and expenses.

• Annual VAT Return:

  • A summary of the monthly/quarterly filings for the year.

• Statutory Audit Requirement:

  • Required for all Foreign-Invested Enterprises (FIEs) and large enterprises.

  • Audit reports must be completed by April 30th.

Additional Compliance Requirements

a. Transfer Pricing Documentation

• Requirement:

  • Companies with cross-border transactions must prepare documentation justifying pricing policies.

• Documentation Deadline:

  • Submitted with the annual CIT return if requested by the tax authorities.

b. Tax Residency Certificate

• Purpose:

  • Obtain for DTAs benefits and avoid double taxation.

• Application:

  • Required for Chinese companies seeking tax benefits abroad.

c. Local Compliance

• Environmental Taxes:

  • Applicable based on pollution levels.

• Social Security Contributions:

  • Companies must contribute to employee social security funds monthly.

Penalties and Non-Compliance

• Late Filing Penalties:

  • Fines and interest on unpaid taxes.

• Audit and Investigations:

  • Tax authorities may conduct audits; penalties for underpayment or evasion can be severe.

• Criminal Liability:

  • Severe cases of tax evasion can lead to criminal charges.

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