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  • China's Current Tax System - Income Tax on Enterprises with Foreign Investment and Foreign Enterprises

China's Current Tax System - Income Tax on Enterprises with Foreign Investment and Foreign Enterprises

2024-05-10
  1. Taxpayers

    Foreign invested enterprises include Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign owned enterprises registered in China as per the law.

    Foreign enterprises include foreign companies, enterprises and other economic organizations which have establishments or places in China engaged in production or business operations or which, though without establishments or places in China, have income from sources within the territory of China.

  2. Tax base

    The foreign invested enterprises registered in China shall pay income tax on their world-wide income. Foreign enterprises usually pay income tax only for the income derived from sources within the territory of China. However, for foreign enterprises established in accordance with laws of foreign countries or jurisdictions but with actual management institutions in China, they shall pay corporate income tax on their income derived from within or outside of China.

    The income tax base for foreign invested enterprises and foreign enterprises with actual management institutions in China is the taxable income which is the residual amount after deduction of non-tax and tax-free income and the allowable deductions for costs, expenses and losses from the gross income in a tax year.

    Any foreign enterprise which has no establishment or place in China but derives income of dividend, interest, rental, royalties and other income from sources within China or which, though it has an establishment or place in China, the said income is not effectively connected with such establishment or place, is taxed on the basis of the gross amount of such income.

  3. Tax rates and calculation of the amount of tax payable

    The income tax on foreign invested enterprises registered in China and foreign enterprises with actual management institutions in China is 25% of the taxable income. Any foreign enterprise which has no establishment or place in China but derives income of dividend, interest, rental, royalties and other income from sources within China or which, though it has an establishment or place in China, the said income is not effectively connected with such establishment or place shall pay income tax of 20% on such income.

    The formula for computing the amount of tax payable is as below:
    Amount of tax payable = Taxable income X Applicable tax rate

  4. Main tax incentives

    Tax exemptions or tax reductions may be granted to foreign invested enterprises of a production nature, export-oriented enterprises with foreign investment, technologically advanced enterprises with foreign investment, and foreign invested enterprises established in the Special Economic Zones, the Economic and Technological Development Zones, the Coastal Open Economic Zones and the New and High-technology Industrial Development Zones specified by the State.

    The foreign investor who reinvests its share of profits from enterprises with his investment directly into that enterprise by increasing its registered capital or who uses the profit as capital investment to establish another enterprises with foreign investment could temporarily enjoy the tax exemption.

    The exemption or reduction of income tax attributed to local governments for any foreign invested enterprise engaged in an encouraged industry or project may, in accordance with the actual situation, be granted by the people's government of the relevant province, autonomous region or municipality directly under the State Council.

Disclaimer

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