China’s booming economy and ever-growing consumer market make itself an attractive business destination. Foreign companies are looking to set up overseas branches in China as some of its major cities prove to be ideal for expansion. At Links International, we help our diverse and international clients set up their presence in China with our HR Outsourcing and PEO/EOR Secondment. Many of our clients have also entrusted us with their recruitment processes in China.
It is of fundamental importance for an employer to understand the tax obligations and taxation system where the business is. With 18 different types of taxes, China’s taxation system can be an enigma to new business owners and employers. To help employers and HR leaders grasp the basics of taxation in China, Links has put together some essentials of what you need to know about tax obligations 一 China tax rates, corporate tax, income tax, and more.
Tax Obligations as An Employer in China
Employers in China must comply with rules and laws relating to income taxes and social security contributions:
Withholding Individual Income Tax
In China, the individual income taxes of employees are withheld by the employer on a monthly basis. The employer should pay the withheld amount directly to the Chinese tax authority.
Social Security Contributions
According to China’s social insurance system, both employers and employees are obliged to participate and contribute to the following social security insurance funds. The monthly contribution rates and caps vary among different local jurisdictions.
- Pension fund
- Unemployment insurance fund
- Medical insurance fund
- Housing provident fund
In addition, employers in China are required to contribute to the below:
- Work-related injury funds
- Maternity insurance funds
China’s employment and labour laws can get complicated at times as the rules change depending on where your business is. Ease through payroll processes in China with the help of our award-winning HR Outsourcing and Recruitment services! Get in touch with one of our Links representatives today so you can focus on growing your business in China.
China Corporate Tax Rates
Also commonly known as Enterprise Income Tax, China’s Corporate Income Tax rates vary depending on the company’s tax residency.
- Resident enterprises refer to companies legally established in China or in accordance with a foreign law-making authority with an effective management institution within China. These companies are taxed on their worldwide income.
- Non-resident enterprises refer to companies legally set up in accordance with a foreign law-making authority with effective management outside China but have an establishment set up in China. This type of enterprise is subject to corporate income tax in China for its China-sourced income derived from the establishment and also any income derived from outside of China that is connected to the establishment.
- Enterprises that derive income from China without any establishment set up in China are also considered as non-resident enterprises and are only taxed on its China-sourced income.
The standard corporate tax rate is 25% and is applicable nation-wide; there is no local or regional corporate income tax in China. A withholding corporate income tax rate of 20% (currently reduced to 10%) is applicable to certain income derived from China by non-resident companies that have no establishment in China or non-resident companies with an establishment in China, but the income is not connected to the establishment. These incomes include dividends, interests, rents, bonuses and royalties derived in China.
Goods and Services Taxes
In addition to corporate income tax, businesses in China may also be obligated to pay a number of goods and services taxes, including VAT, Excise Tax, Business Tax, Vehicle Purchase Tax and Customs Duty.
Tax Incentives in China
Certain qualified income is subject to tax reduction or exemption in China:
- Income derived from agriculture, forestry, animal husbandry and fishery projects can enjoy tax exemption.
- Beginning from the year in which a project generates income from its operation, infrastructure projects falling within the scope of key support from the State can enjoy tax exemption for the first three years and a 50% tax reduction in corporate income tax for the next three years.
- Projects related to environmental protection and energy or water conservation are eligible for tax exemption for the first three years and a 50% tax reduction in corporate income tax for the next three years.
Small or low-profit enterprises, companies in advanced technology sectors or businesses set up in Western regions in China may be eligible for a preferential tax rate.
- On top of the standard corporate tax rate, enterprises having an annual taxable income of less than 300,000 RMB with no more than 50 million RMB of total assets and a maximum of 300 employees can enjoy an additional 25% tax reduction for taxable income under 1 million RMB. An additional 50% tax reduction is applied to the taxable income from 1 million RMB to 3 million RMB.
- Companies engaged in “high-tech” activities, as recognized by the tax authorities, are qualified for a reduced corporate tax rate of 15% on their taxable income.
- Setting up an enterprise in certain Western regions in China may qualify a business for a reduced corporate tax rate of 15%. The business operation should engage in specific encouraged industries. These appointed regions include Guangxi, Chongqing, Sichuan, Inner Mongolia, Xinjiang, Qinghai, Yunnan, Tibet, Ningxia, Guizhou, and Gansu.
Tax Incentive for Hiring Disabled Employee
When hiring a disabled worker in China, companies can deduct an additional 100% of the employee’s annual salary from the taxable income. For example, if the employee’s annual salary is 150,000 RMB, the company is able to deduct 300,000 RMB from the corporate taxable income.
The employee must have a minimum 1-year contract or service agreement with the employer, and the employer is responsible for the monthly social security costs of the employee. The salary of the employee should be no less than the minimum salary paid to a non-disabled employee.
Employees’ Income Tax in China
As an employer, it is important, and a responsibility, to understand and facilitate your employee’s tax obligations in addition to your own.
China’s individual income tax is levied on a progressive rate. Resident taxpayers, employees with a domicile or have resided in China for a combined period of 183 days or more in a taxable year, are taxed on income derived both within and outside China. Employees with no domicile or have resided in China for a combined period of fewer than 183 days are considered non-resident taxpayers and are taxed only on income derived in China.
Individuals are taxed on three categories of income derived in China: comprehensive income (3% to 45%), business income (5% to 35%) and the income derived from interest, dividends and bonuses, leasing or transfer of property, and contingent income (20%). The comprehensive tax rate is applied to income from wages and salaries, author’s remuneration, remuneration for services and royalties. Business income refers to income derived from the business operations of an individual industrial and commercial household.
Comprehensive Tax Rates in China
|Taxable Income||Tax Rate|
|RMB 0 – RMB 36,000||3%|
|RMB 36,001 – RMB 144,000||10%|
|RMB 144,001 – RMB 300,000||20%|
|RMB 300,001 – RMB 420,000||25%|
|RMB 420,001 – RMB 660,000||30%|
|RMB 660,001 – RMB 960,000||35%|
|RMB 960,001 or above||45%|
Individual Business Income Tax Rate
|Taxable Income||Tax Rate|
|RMB 0 – RMB 30,000||5%|
|RMB 30,001 – RMB 90,000||10%|
|RMB 90,001 – RMB 300,000||20%|
|RMB 300,001 – RMB 500,000||30%|
|RMB 500,001 or above||35%|
Or need help with recruitment for your new business? Links HR Outsourcing provides professional payroll and HR support that will cater to your business needs. Check out our services today or contact one of our specialists for a consultation.