Income Tax of Foreign Companies in China
- Foreign-Invested Enterprises
An FIE is a legal entity established in PRC under PRC laws where the equity interest or shares held be one or more foreign investors.FIEs include, generally, WFOEs, EJVs and CJVs.
FIEs shall pay enterprise income tax in relation to their income originated both within and outside China.
- Foreign Enterprises
Foreign enterprises are subject to PRC enterprise income tax if they are considered having established a permanent presence, or alternatively if they have other China-sourced income.
China-sourced income includes income from dividends, interest, rental income, royalties, and capital gains.Unlike relevant treaties for the avoidance of double taxation, PRC tax laws and regulations do not offer an exclusive list of income defined as China-sourced, but only give examples and add the catch-all formula of “other income derived from China and stipulated as taxable by the Ministry of Finance.”
Foreign enterprises should bear in mind, however, that international treaty provisions always supersede domestic laws and regulations.
Taxable income is gross income minus costs, expenses, losses, non-taxable income, tax-exempted income and various deductions.
Gross income includes both money and non-money forms of income received by an enterprise from all kinds of sources, which includes: Income from sale of goods; Income from providing services; Income from transfer of properties; Dividends, bonus and other return of equity investments; Interests; Rentals; Royalties; Income from gifts or donations; and Other income.
Enterprise Income Tax Rate
The general rate of enterprise income tax is 25%. A lower tax rate may be applied in specific circumstances.
The general rate of FE’s enterprise income tax is 25% if the FE has a premise in China and the income originated outside China but having an actual connection with its Chinese premise.
According to the currently effective Implement Provision, FE’s income tax rate can be 10% if such FE has no office or establishment inside China, or for a non-resident enterprise whose incomes have no actual connection to its institution or establishment inside China.
Individuals’ Income Tax
China’s Individual Income Tax Law groups personal income into 9 categories: Wages and salaries, Remuneration for labor services, Author’s remuneration, Royalties, Business Income
Interest, dividends, and profit distribution, Rental income, Income from transfer of property; Incidental income
Each income category has its own tax rates, allowable deductions,etc.
For residents, employment income, remuneration for labor services, author’s remuneration, royalties, and business income are combined as 'comprehensive income' for aggregate tax calculation purpose on an annual basis. Income from the other categories is taxed separately by category on a monthly or transaction basis.
Monthly Taxable Income shall refer to monthly income minus RMB5000
Monthly Taxable Income (RMB)
Quick Deduction (RMB)
For non-residents, income from each of the 9 categories is taxed separately on a monthly or transaction basis.
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