China Tax Presentation
January 21, 2009
Richard Tan
Ge Wang

Part I Overview of China

PEOPLE’S REPUBLIC OF CHINA

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Chinese Totem
Dragon

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Location
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Situated in eastern Asia on the western shore of the

Pacific Ocean
An area of 9.6 million square kilometers.

Continental coastline extends for about 18,000

kilometers.
Its vast sea surface is studded with more than 5,000

islands, of which Taiwan and Hainan are the largest.
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Overview
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Almost 4,000 years of recorded history , one of

the world's most ancient civilizations.
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The most populous country in the world,

containing about 1/5 of the world's total
population.
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Many different ethnic groups, languages and

religions exist throughout the country.
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The Four Great Inventions of Ancient China
Printing

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The Four Great Inventions of Ancient China
Paper making

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The Four Great Inventions of Ancient China
Gunpowder

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The Four Great Inventions of Ancient China
Compass

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Notable figures
Confucius

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Notable figures
Qin Shi Huang

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Notable figures
Mao Ze Dong

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Notable figures
Yao Ming

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Notable figures
Zhang Zi Yi

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Place of Interest
The Forbidden City

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Place of Interest
The Great Wall

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Place of Interest
Temple of Heaven

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Place of Interest
Terracotta Army

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Place of Interest
Guilin

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Place of Interest
Jiu zhai

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Place of Interest
The Bird’s Net Olympic Stadium

Water Cube

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Culture
Beijing Opera

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Culture
Dragon Dance

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Culture
Chinese Kung Fu

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Culture
Chinese Kung Fu

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Culture
Chinese Kung Fu

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Tradition
Spring Festival

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Tradition
Spring Festival

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Tradition
Mid-Autumn Day

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Tradition
Mid-Autumn Day

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Tradition
Dragon Boat Festival

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Tradition
Dragon Boat Festival

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Chinese Food
Lu Cuisine

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Chinese Food
Chuan Cuisine

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Chinese Food
Yue Cuisine

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Chinese Food
Min Cuisine

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Chinese Food
Hui Cuisine

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Chinese Food
Xiang Cuisine

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Chinese Food
Su Cuisine

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Chinese Food
Zhe Cuisine

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Part II Overview of China Tax
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Overview of China Tax
Tax revenue

Sources of law

Tax administration

Major taxes

Income taxes

Tax treaties

Brief comparison with US tax system

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I. Tax Revenue
Billion RMB
30000
25000
20000
Tax Revenue
15000
GDP
10000
5000
0
1999 2000 2001 2002 2003 2004 2005 2006 2007
Billion RMB
1999 2000 2001 2002 2003 2004 2005 2006 2007
Tax Revenue 1031.50 1266.58 1516.55 1699.66 2046.61 2571.80 3086.58 3763.63 4944.93
GDP 8967.70 9921.45 10965.52 12033.27 13582.28 15987.83 18386.79 21087.10 24661.90
Percentage 11.50% 12.77% 13.83% 14.12% 15.07% 16.09% 16.79% 17.85% 20.05%
Data source: China National Bureau of Statistics and China State Administration of Taxation
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II. Sources of Law
National People’s
Congress
(NPC)
State
Council
State Administration
Ministry of Finance
Other ministries
of Taxation (SAT)
(MOF)
and bureaus under
the State Council
Structure of political system in China

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51

II. Source of Law
Constitution

Laws promulgated by the National People’s

Congress (“NPC”) or its Standing Committee
Regulations promulgated by the State Council

Measures and Notices issued by the Ministry

of Finance (“MOF”) or the State
Administration of Taxation (“SAT”)
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III. Tax Administration
Central government

The State Administration of Taxation

Local government

Local Tax Bureaus

State Tax Bureaus at local levels (provincial, municipal)

Criticism and reform

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III. Tax Administration
Local Tax Bureaus Mainly in charge of Individual Income Tax, Business Tax,
Urban Real estate Tax, Land Appreciation Tax, Deed Tax,
Corporate Income Tax (of corporations established before
2002), etc.
State Tax Bureaus Mainly in charge of Value-added Tax, Consumption Tax,
Corporate Income Tax (of corporations established after
2002), etc.
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IV. Major Taxes
Income Taxes

Turnover Taxes

Property and Behavior Taxes

Others

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IV. Major Taxes
Income Taxes

Individual Income Tax

Corporate Income Tax

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IV. Major Taxes
Turnover Taxes

Value-added Tax

Business Tax

Consumption Tax

Tariff

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IV. Major Taxes
Property and Behavior Taxes

Stamp Tax

Deed Tax

Land Appreciation Tax

Urban Real Estate Tax

Resource Tax

Vehicle/Vessel Tax

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IV. Major Taxes
Other Taxes

Urban Maintenance and Construction Tax

Other minor taxes

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V-1. Individual Income Tax
Taxpayers

Domiciled in China  Subject to tax on world-wide

income.
Not domiciled in China  Subject to tax on “China-

sourced income” depending on how long the individual
stays in China.
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V-1. Individual Income Tax
China Sourced Income Foreign Sourced Income
Income paid or Income paid or
Income paid or Income paid or
borne by borne by
borne by foreign borne by foreign
employer / employer /
employer / employer /
establishment in establishment in
establishment establishment
China China
< 90 / 183 (when tax Taxable / / /
treaty applies) days
90 / 183 (when tax
treaty applies) days – Taxable Taxable / /
1 year
1 year – 5 years Taxable Taxable Taxable /
>5 years Taxable Taxable Taxable Taxable
A brief explanation of taxable income and days spent in China
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V-1. Individual Income Tax
Taxpayers

Partnerships are transparent entities.

No option for choosing to be treated as taxable entity.

The tax liabilities of partnerships flow directly to the partners.

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V-1. Individual Income Tax
Taxable Income

wages and salaries from employment;

business income by industrial and commercial

households/entrepreneurs;
Income from contracting for or leasing operations of corporations or

institutions;
remuneration for personal services performed by an independent

contractor;
remuneration for manuscripts;

royalty income;

interest income, dividends and bonuses;

Income from leasing properties;

Income from assignment or transfer of properties;

contingency income;

other income specified to be taxable by the competent authority.

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Individual Income Tax
Tax-exempt Income

Monetary awards granted by the Central Government, provincial

Governments, international organizations for achievement in
science, education, technology, culture, public health, sport, etc;
Interest on State treasury bonds;

Qualified Subsidies, allowances, welfare benefits, etc.;

Insurance indemnities.

Income of diplomatic representatives;

Tax-exempt income as stipulated in international conventions ;

Tax-exempt income as approved by the finance department of the

State Council.
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V-1. Individual Income Tax
Tax Rates

Rate
Monthly Income (RMB¥)
(%)
Basic Salary - if Employee pays his/her
If Tax is borne by Employer
Tax
¥500 or below (after deduction of ¥475 or below (after deduction of
5
RMB¥4,800 for expenses) RMB¥4,800 for expenses)
The part over ¥500[1] to ¥2,000 The part over ¥475 to ¥1,825 10
The part over ¥2,000 to ¥5,000 The part over ¥1,825 to ¥4,375 15
The part over ¥5,000 to ¥20,000 The part over ¥4,375 to ¥16,375 20
The part over ¥20,000 to ¥40,000 The part over ¥16,375 to ¥31,375 25
The part over ¥40,000 to ¥60,000 The part over ¥31,375 to ¥45,375 30
The part over ¥60,000 to ¥80,000 The part over ¥45,375 to ¥58,375 35
The part over ¥80,000 to ¥100,000 The part over ¥58,375 to ¥70,375 40
The part over ¥100,000 The part over ¥70,375 45
Tax rate schedule for wages and salaries, stipulated by Individual Income
Tax Law of China
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V-1. Individual Income Tax
Tax Rates

Incomes Rate
Business income by industrial and commercial Progressive rate from
households/entrepreneurs 5% to 35%
Remuneration for personal services performed by an independent Progressive rate from
20% to 40%
contractor;
20%, with deduction
Remuneration for manuscripts of 30% in taxable
income
Royalty income, interest income, dividends and bonuses; income
from leasing properties;
20%
income from assignment or transfer of properties;
contingency income
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V-1. Individual Income Tax
Tax calculation (salary)

Tax liability = (Salary amount – standard deduction ) *

applicable tax rate
Possible reforms in the future

A higher threshold

Flexible deductions

Joint returns

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V-2. Corporate Income Tax
Corporate Income Tax Law, effective from January 1, 2008

Detailed Implementation Rules of the Corporate Income Tax

Law
Transitions from old systems to the new unified system

Other Notices and Interpretations issued by the MOF and SAT

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V-2. Corporate Income Tax
Reform from 2008

Before Jan 1, 2008 After Jan 1, 2008
Two previous parallel systems: one for One unified system
domestic corporations and the other for
foreign invested corporations
General tax rate: 33% General tax rate: 25%
Tax holidays and incentives for foreign Industry-based tax incentives
invested corporations; without geographic limitation
Preferential tax measure in Special
Economic Zones
Tax refund for reinvestment Appealed
Thin capitalization, anti-
avoidance measures
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V-2. Corporate Income Tax
Taxpayers

Resident corporations

Incorporated in China

Incorporated outside of China but effectively managed in China

Subject to tax on worldwide income

Non-resident corporations

Subject to tax on China sourced income

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V-2. Corporate Income Tax
Taxable Income

Accrual basis

Monetary and non-monetary revenue

Revenue from sale of goods

Revenue from provision of services

Revenue from transfer of property

Dividends, profit distribution and other returns on equity

investment
Interest

Rent

Royalties

Donation, and

Other revenue

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V-2. Corporate Income Tax
Deductions

Reasonable expenses incurred by the corporations in

connection with the deriving of revenue, including costs,
fees, taxes, losses, etc. can be deducted when calculating
taxable income.
Donation, capped at 12% of total annual profit

Loss carry-forward for up to 5 years

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V-2. Corporate Income Tax
Tax Rates

25% for normal resident corporations

20% for qualified small-scale corporations

15% for qualified High and New Technology Corporations

20% normal withholding tax rate for non-resident

corporations, subject to special provisions or tax treaties
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V-2. Corporate Income Tax
Withholding Tax Rates

Dividends – 10%

Interest – 10%

Royalties and fees – 10%, generally subject to additional

Business Tax of 5%
The above rates may be reduced by an applicable tax treaty

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V-2. Corporate Income Tax
Tax Incentives

Exemption or 50% exemption for income from

Encouraged agricultural activities

Qualified infrastructure projects

Qualified Environmental protection projects

Qualified technology transfer

Super deduction for R&D expenses

Accelerated depreciation for technology advancement

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V-2. Corporate Income Tax
Anti-avoidance Rules

Thin capitalization

Controlled foreign company

Transfer pricing

Cost sharing

Documentation requirements

Foreign tax credit – credit system

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VI. Tax Treaties
Up till Jan 1, 2009, 87 tax treaties plus tax

arrangement with Hong Kong and Macau
Australia Belgium Brazil

Canada France Germany

India Japan Kazakhstan

Luxembourg Netherlands

Portugal Russia Singapore

Sweden Switzerland United Kingdom

United States

Reference on OECD Model though China is not an OECD

member
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VII. Brief Comparison with
US Tax System
No AMT

No Branch Tax

No “check-the box rule”

No distinction between “ordinary income” and

“capital gain”
No consolidated filings unless specially

approved
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Thank you!
Welcome to China!
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