CHINA FOREIGN INVESTMENTS POLICIES AND PREFERENCES
Tax Policies for Foreign Direct Investments
I. Major Tax Categories
Taxes that are applied to foreign-invested enterprises,
foreign enterprise and foreign citizens in China (including
compatriots from Hong Kong, Macao and Taiwan) are: corporate
income tax, personal income tax, turnover taxes (include
value-added tax, consumption tax, and business tax),
land tax, stamp duty, vehicle and vessel tax, urban
real estate tax, etc. Imports and exports will pay tariff
and import-stage value-added tax in accordance with
Customs' tariff statutes.
Corporate Income Tax
a. Foreign-invested enterprise or foreign enterprise
that has set up establishment or place in China to engage
in production or business operations must pay corporate
income tax, and the tax is levied at the rate of 30
percent, as well as another 3 percent for local income
tax.
b. Foreign enterprise that has not set up establishment
or place, but have gained profits (bonus),
interest, rent, license utilization fee, and other kinds
of income from Chinese territory should pay 20 percent
income tax.
Value-Added Tax
All units and individuals engaged in the sale of goods,
provision of procession, repairs and replacement services,
and the importation of goods within territory of the
People's Republic of China are taxpayers of Value Added
Tax. The basic tax rate of VAT shall be 17%; for taxpayers
selling or importing food gains, edible vegetable oils,
tap water, books, newspapers, magazines, feeds, chemical
fertilizers, agricultural chemicals, agricultural machinery
and some other goods, the tax rate shall be 13%.
Consumption Tax
All units and individuals engaged in the production,
sub-contracting processing or import of consumer goods
like tobacco, alcoholic drinks, alcohol, cosmetics,
skin-care and hair-care products, precious jewelry and
precious jade and stones, firecrackers, and fireworks,
gasoline, diesel oil, motor vehicle tyres, motorcycles,
motor cars, within territory of the People's Republic
of China are taxpayers of Consumption Tax. There are
11 taxable items and 14 tax rates (tax amounts) of Consumption
Tax, from the lowest 3% to the highest 45%. The computation
of tax payable for Consumption Tax shall follow either
with rate on value or the amount on value method.
Business Tax
All units and individuals engaged in the provision of
services as transportation and communications, posts
and telecommunications, finance and insurance, construction,
culture and sports, entertainment, servicing, the transfer
of intangible assets or the sale of immovable properties
within territory of the People's Republic of China shall
pay Business Tax in accordance with regulations. There
are 3 tax rates of Business Tax, from the lowest 3%
(such as transportation and communications fee) to the
highest 20% (such as entertainment).
Tariff
The average tariff rate of China is 12%.
Stamp Duty
All units and individuals engaged in the procession
of purchase and sale, machining, contracting, property
tenancy, goods transportation, storage, loan, property
insurance, technological contract, as well as quitclaim
deed, business account book, and certificate of authorization
within territory of the People's Republic of China shall
pay Stamp Duty in accordance with regulations. The lowest
tax rate of Stamp Duty is 0.05‰, and the highest
is 1‰. Each certificate of authorization and business
account book (not include account book that records
capital) must paste a stamp of 5 Yuan.
Urban Real Estate Tax
The house property owned by foreign-invested enterprise
or foreign citizen shall pay Urban Real Estate Tax in
accordance with regulations. The computation shall follow
either with the value of house property after a one-off
deduction of 10%-30%, and the annul tax rate is 1.2%;
or with the rent of house property, and the tax rate
is 12%. Urban Real Estate Tax takes one year as a unit,
and is paid by stages.
Vehicle and Boat Tax
Vehicles and boats owned by foreign-invested enterprise
shall pay Vehicle and vessel Tax in accordance with
Interim Regulations Concerning the Vehicle and Vessel
Usage License Plate Tax. Tax payable on Camion, powerboat
and non-powerboat is calculated on the base of the carrying
capacity or net tonnage of camion or boat, which on
other motor vehicle and non-motor vehicle is on base
of the number of vehicles payable.
Personal Income Tax
(i) Within territory of the People's Republic of China,
personal wage and stipend shall pay Personal Income
Tax. The rate of Personal Income Tax is computed with
progressive taxation, and is divided into 9 degrees
from the lowest 5% to the highest 45%.
(ii) Individual's income that come from designing, upholstering,
installation, drawing, assaying, testing, medical treatment,
law, accounting, consultation, lectures giving, news,
broadcasting, translation, auditing, painting and calligraphy,
carving, film, recording, kinescoping, performance,
acting, advertising, exhibition, technological services,
introduction services, broking, commission services,
and other kind of labour, shall also pay Personal Income
Tax. Make a reduction of 800 Yuan if each income is
below 4000 Yuan, or reduce 20% if above 4000 Yuan, and
the remaining amount is the income payable and shall
pay Personal Income Tax at the rate of 20%. If the income
payable of an individual's one-off labour reward exceeds
20000 to 50000 Yuan, the tax rate of the exceeding part
shall increase 5%; if the income payable exceeds 50000
Yuan, the tax rate of this part shall increase 10%.
Deed Tax
All units and individuals that receive land or house
property within territory of the People's Republic of
China shall pay Deed Tax in accordance with regulations.
The transferring of land and house property refers to:
(i) Remising of the utilization right of national land,
not include the transferring of management right of
countryside collective land contracting; (ii) Transferring
of utilization right of land, include selling, gifting
and exchanging; (iii) House buying and selling; (iv)
House gifting; (v) House exchanging. The rate of Deed
Tax ranges from 3% to 5%.
II. Preferential Tax Policies
The Chinese government levies low tax on enterprises
with foreign investment, and the main preferential tax
policies include: practice preferential rate of Corporate
Income Tax, reduce Corporate Income Tax, as well as
exempt tariff and import-stage value-added tax of import
equipment.
Preferential Rate of Corporate Income Tax: The normal
rate of Corporate Income Tax for foreign-invested enterprise
is 33%, but preferential tax policies are offered to
the sectors and regions where investment is encouraged
by the state.
The 15% preferential rate of tax apply to
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Enterprises with foreign investment located in special
economic zones |
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Production Enterprises with foreign investment located
in Pudong New District (Shanghai) |
|
Production Enterprises with foreign investment located
in state economic and technological development areas |
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Enterprises with foreign investment located in state
new and hi-tech industrial zones that adopt new and
high technology; |
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Enterprises with foreign investment that are engaged
in projects such as energy, communications, port and
dock. |
The 24% preferential rate of tax apply to
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Production Enterprises with foreign investment located
in open coastal economic zones, open cities beside sea,
river or frontier, or provisional capitals |
|
Production Enterprises with foreign investment located
in the old part of cities possessing special economic
zones or state economic and technological development
areas. |
Reduction of Corporate Income Tax
|
The production enterprises with foreign investment
that have an operation period exceeding 10 years shall,
from the year they begin to make profit, be exempted
from income tax for the first two years and allowed
a 50% reduction for the following three years; |
|
The enterprises with foreign investment that adopt
advanced technology shall be exempt from income tax
for the first two years and allowed a 50% reduction
for the following six years; In addition to the two-year
tax exemption and three-year tax reduction treatment,
foreign-invested enterprises producing for export shall
be allowed a reduced income tax rate of 50% as long
as their annual export accounts for 70% or more of their
sales volume (If a production enterprise pays corporate
income tax on the rate of 15% and fits in this condition,
then it could pay corporate income tax on the rate of
10%. ) ; |
|
Enterprises with foreign investment engaged in agriculture,
forestry and animal husbandry, and enterprises with
foreign investment established in remote and underdeveloped
areas may, upon approval by the State Bureau of Taxation,
be allowed a 15 to 30 percent reduction on the income
tax for a period of another 10 years following the expiration
on the period of tax exemption and reduction as provided
for above; |
|
The income tax on enterprises with foreign investment
located in mid-west China that are engaged in projects
encouraged by the government shall be levied at a reduced
rate of 15% for a period of anther three years following
the expiration of the five-year period of tax exemption
and reduction; |
|
The income tax on enterprises with foreign investment
located in mid-west China that are engaged in projects
encouraged by the government shall be levied at a reduced
rate of 15% during the period of 2001 to 2010; |
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Reinvestment and tax refunding. The foreign investor
of an enterprise with foreign investment which reinvests
its share of profit obtained from the enterprise in
a project with an operation period of no less than 5
year shall, upon approval by the State Bureau of Taxation
of an application filed by the investor, be refunded
40% of the income tax already paid on the reinvested
amount. Foreign reinvested export-oriented enterprises
shall be refunded 100% of the income tax already paid
on the reinvested amount; |
|
Profits of foreign investors gained from wholly
foreign-owned enterprise shall be exempt from income
tax; |
|
Deduction of local income tax. The exemption and
reduction of local income tax on enterprises with foreign
investment that are engaged in encouraged industries
and projects shall be decided by local government of
province, autonomous region and municipality in accordance
with actual situation. |
III. Deduction and Exemption of Import Tariff
(i) Tariff rate: The present average tariff rate is
12%.
(ii) Tax exemption for imported equipment: Equipment
imported for foreign-invested or domestic-invested projects
that are encouraged and supported by the state shall,
besides all commodities in Catalogue of Imported Commodities
not Entitled for Tariff Exemption for Projects with
Foreign Investment, enjoy tariff and import-state value-added
tax exemption.
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