Tax (Mainland)

The tax year in China runs from 1st January to 31st December. Returns, financial statements audited by a PRC accountant, and settlement of outstanding tax liabilities for the previous tax year must be made by 31st May. Provisional returns and tax payments must be made within 15 days of the close of each quarter.

Corporate Income Tax: 25%
The new PRC Enterprise Income Tax Law became effective on 1 January 2008, replacing dual laws for domestic and foreign-owned enterprises that had been in place for 15 years. Previous tax incentives remain available until 1 January 2013 to companies incorporated before 16 March 2007.

A company is regarded as tax resident in China if it is incorporated in the PRC, or if overall management and control are in the PRC. Corporate residents of the PRC are taxed on their worldwide incomes, with tax credit allowed for income taxes paid in other countries up to the amount that would have been due if taxed in the PRC. Non-PRC resident companies in China are only taxed on PRC-source income, although any PRC ‘establishments’ (branch, office, workshop, factory etc) of that company are taxed on their income even if it is not from a PRC source.

Controlled Foreign Corporations’ (CFC) earnings are subject to PRC tax if they are retained overseas without a reasonable business purpose. Management and control tests akin to the UK’s require Chinese companies registered overseas to have substance.

Preferential rates (as low as 7.5%) and tax holidays are available for set periods to companies in the Special Economic Zones; low profit business; and projects actively encouraged by central policy, such as environmentally friendly and forestry enterprises.

Withholding Taxes: 10% (except Branch Remittance 0%)
The withholding income tax rate applying to dividends, interest, rentals, royalties, capital gains and other passive income derived in China by non-PRC tax resident companies is 10%.

Capital Gains Tax: 25% (except Real Property Gains on transfers 30-60%)
Capital gains and losses are treated as other taxable income and losses, including liability to withholding tax for PRC-source capital gains of non-PRC residents.

VAT: 17% (except specified products, eg basic necessities 13%)

Tax treaties
China has double tax treaties with a number of jurisdictions that seek to avoid taxation of the same income in more than one jurisdiction. In other words, any tax paid in one contracting state with respect to an income shall be allowed as a credit against the tax on that income payable in the other contracting state. Generally, double tax treaties cover any income tax (including both enterprise income tax and individual income tax) but not turnover taxes (eg business tax, value-added tax, etc) that may be payable. Currently, China has entered into double tax treaties with 88 countries, including the UK but not Jersey.