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Business taxes in China

As with any other nation, doing business in China requires every business to pay their taxes. The system is more confusing than many nations, however, and compliance can be difficult.

For small businesses and American importers it is not an issue. But if you open an office in China you will be accountable for the Value Added Tax (VAT) and possibly even corporate taxes. The system is complicated and compliance can be difficult.

The VAT

China relies on the VAT for most of its business taxes. It has a complicated system for calculating the applicable rate based on the business which you are in. It ranges from six percent to 14 percent.

Fortunately, this only applies to “general taxpayers,” defined as businesses above a certain size. This limit is quite high and a simple office in China may not reach that threshold. This is:

  • RMB 500,000 (US $75,400) for industrial taxpayers, which includes manufacturers
  • RMB 800,000 (US $120,570) for commercial taxpayers such as retail or importers

Below the threshold, a business is considered “small-scale” and subject only to a three percent VAT. It’s also important to note that exporters do not pay any VAT at all on all goods exported.

Corporate taxes

Like every other nation, China has a tax on registered corporations. It is now set at 25 percent, higher than the new US rate of 20 percent. It may be advantageous for this reason to realize as much profit as possible in the US rather than in China, especially if your operation is small. China has also pledged to stop collection of taxes  on US corporations for this reason.

There has been a pledge to reduce corporate taxes as well as the cost of compliance, which can be very high. The system is complicated and has been cited as a concern for many small businesses.

Consult with experience

As always, business in China requires a lot of expertise and attention to detail. There is no substitute for consultation with an experienced Chinese investment attorney before proceeding.

 

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