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Business Taxation for Expats in China

Submitted: October 2013

The Chinese Tax Authority is the State Administration of Taxation (SAT), their website is here.

Registration

For expat residents in China the most common form of business structure is a limited liability company (company). Such a company requires a minimum of two directors, and a minimum registered capital of ¥30,000. This capital can be paid in instalments within two years. The initial instalment must be at least 20% of the registered capital. The business income is taxed at the corporate tax rate. Another possible choice is a one-person limited liability company, however this requires a minimum registered capital of ¥100,000, and your liability extends to your own personal assets if you cannot show the assets of the company are independent from your own.

All Chinese companies must be registered with the State Administration for Industry and Commerce (AIC). This process is complex and must be undertaken by a legal representative or agent. You must first get approval for your chosen company name. Then a formation application must be prepared including the articles of association, evidence of the capital contributions made by shareholders, the identity of shareholders, and the appointment of the directors and managers. The AIC will respond within 30 days and issue a business licence, or give reasons for a refusal to do so. There is a useful guide to the complete process here which includes such steps as obtaining a company seal and registering for tax.

Corporate Tax

The Chinese tax year for companies runs from 1 January to 31 December. Chinese resident companies are liable for enterprise income tax (EIT) on their worldwide income and capital gains. Non-resident companies are generally only liable for EIT on their Chinese source income and gains.

The general rate of EIT is 25%. There is a lower rate of 20% for ‘thin-profit’ enterprises which have and income of less than ¥300,000, no more than 80 employees (100 employees for industrial companies) and a total asset value of no more than ¥10m (¥30m for industrial companies). There is also an additional lower rate of 15% which only applies to certain high or new technology companies and some non-resident enterprises.

In China capital gains are taxed as ordinary company income and capital losses can be offset against any form of other income.

EIT is collected under a self-assessment system. Companies are required to calculate and pay tax in monthly or quarterly instalments within 15 days of the end of the period. A final annual tax return must be lodged within five months of the end of the tax year, and must be accompanied by accounting statements or an auditor’s report from a Chinese accountant. Penalties apply for late payment of tax.

There is a separate tax regime for family businesses described as individual industrial and commercial households (the classic shophouse), which is effectively self-employment. It also applies to income earned from production and business operations by investors of single proprietorship and partnership enterprises. The taxable income for these operations is calculated as gross annual income, minus costs, expenses and losses. The actual income tax payable will be calculated by applying the rates in the table below, and then subtracting the quick deduction.

Monthly taxable income (¥)RateQuick deduction (¥)
0  to   5,0005%0
5,001  to 10,00010%250
10,001  to 30,00020%1,250
30,001  to 50,00030%4,250
Above 50,00035%6,750

In order to be subject to this regime, you must apply for a business license. Licences are valid for a minimum of six months and a maximum of four years. One month before the expiry of the licence you can apply for a new one. The application procedure is complex, there is some guidance here, and the relevant law is here.

 

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