Company tax

25%

Corporation tax rate for foreign companies

A non-resident enterprise that has no establishment or place in China is taxed only on its China-source income. A non-tax resident enterprise with an establishment or place in China is subject to corporate taxes on income derived by such establishment or place from sources in China as well as income derived from outside the country that is effectively connected with such establishment or place.
A 10% withholding rate (temporarily reduced from 20%) is applied to China-sourced income not related to a non-resident enterprise’s establishments in China, or China income derived by non-resident enterprises without establishments in China.

Capital gains taxation

There is no separate capital gains tax in China; capital gains (and losses) of companies generally are combined with other operating income and taxed at the corporate income rate (25%).

The sale of real estate and net development costs are subject to the land appreciation tax at four bands ranging from 30 to 60% (depending on the percentage of the gain realised).

Main allowable deductions and tax credit

Generally, all documented expenses, costs and losses in generating taxable income are deductible up to a limit: entertainment expenses are 60% deductible up to 0.5% of total income, advertising (up to 15% of total income, 30% in some cases) and donations (up to 12% of total income; although donations for poverty alleviation in certain areas can be fully deducted). Non-deductible items include dividends, management fees, Enterprise Income Tax (EIT) paid and late tax payment surcharge fees.

A deduction is allowed for the amortisation of intangible assets, including patents, trademarks, copyrights, and land use rights. Intangible assets have to be amortised over a period of at least ten years. Organisational and start-up expenses are tax-deductible fully in the first year of activity. Interest on loans is also tax-deductible (subject to conditions). 200% of the salary expenses paid to handicapped staff are deductible.

200% of contributions to non-profit R&D institutions, higher education institutions, or government natural science funds for basic research are deductible. Starting 1 January 2023, 200% of eligible R&D expenses are tax-deductible. For intangible assets formed from these expenses, tax amortization is based on 200% of their cost. From 1 January 2023 to 31 December 2027, integrated circuit enterprises and industrial mother machine manufacturers can deduct 220% of eligible R&D expenses. Tax amortization for intangible assets from these expenses is based on 220% of their cost.

Tax losses can normally be carried forward for a maximum of five years starting from the year subsequent to the year in which the loss was incurred, while carryback of losses is not permitted.

Preferential tax treatments in the form of incentives are further granted to new high-technology enterprises (HNTE), companies in special economic zones (SEZ) and pilot free trade zones (FTZ), while exemptions may apply to agriculture, forestry, fishery, software, infrastructure and other specified environment and technology developments.

Other corporate taxes

A real estate tax, based on property value or rental income, is assessed annually on business or leased land and buildings. The tax rate is 1.2% of the original building value, with local governments often offering a 10% to 30% reduction. Alternatively, the tax can be 12% of rental income. This tax is deductible for CIT purposes. Furthermore, an urban land usage tax is imposed on the land area occupied, with rates ranging from RMB 0.6 to RMB 30 per square meter. Additional minor local levies may also apply. An arable land occupation tax also applies on companies and individuals who build houses or carry out non-agricultural construction on arable lands.

A deed tax, typically ranging from 3% to 5%, may be levied on the purchase, sale, gift, or exchange of land-use rights or real property ownership. The transferee/assignee is responsible for paying the tax.

The sale of real estate and net development costs (or land use rights) are subject to the Land Appreciation tax at 30 to 60% (depending on the percentage of the gain realised).

Stamp duty (0.005% - 0.1%) is levied on specific legal documents.

The employer contributes around 16% of the basic payroll to the state-administered retirement scheme, as well as to medical insurance, maternity insurance, unemployment insurance, and work-related injury insurance funds (bringing the total to up to 40% of base monthly salary, with actual rates varying across the country - it is 28% in Shangai).

An urban construction and maintenance tax is levied on the amount of indirect tax (VAT, consumption tax), at a rate of 7% for urban areas, 5% for county areas, and 1% for other areas.

An educational surtax of 3% is imposed on the amount of China's indirect taxes (VAT and consumption tax) payable by the taxpayer. Additionally, a local educational surtax of 2% is also levied on the same amount. Thus, taxpayers of indirect taxes are also subject to both educational surtaxes.

A motor vehicle acquisition tax is levied at 10% of consideration on automobiles, tramcars, trailers, and motorcycles. A vehicle and vessel tax also applies (generally at fixed amounts).

Companies and individuals active in the entertainment and advertising businesses are subject to a cultural business development levy at 3% on the relevant income.

Local authorities levy a resources tax on natural resources, including crude oil, natural gas, coal, salt, raw metallic metals, non-metallic metals, mineral water, carbon dioxide gas, and water (in 10 provinces). This tax is applied on a sales turnover or tonnage/volume basis.

An environmental protection tax (EPT) is levied on enterprises that directly discharge taxable pollutants within the Chinese territory. It is calculated based on the volume of pollutants discharged multiplied by a specific EPT coefficient.

Other domestic resources

State Tax Administration

Tax rate

Allowable deductions and tax credit

Deductions and allowances are available, depending on the category of income. For wages and salaries received in China, individuals also receive a flat monthly deduction of CNY 5,000.

Personal basic contributions are deductible. These include payments to housing funds and certain medical insurance, pension and unemployment insurance payments. Taxable income from personal services, royalties and remuneration from manuscripts and the leasing of property is net of a standard deduction for expenses that is equal to 20% of total income. Reasonable business expenses incurred in earning income from a business are deductible. Rental income is also subject to deduction (according to the monthly amount received). For sales of property, the original cost of the property and reasonable expenses incurred are deductible from the sales proceeds to determine the taxable income.

Certain specific deductions also apply, including child education (CNY 2,000 per child per month); continued education (CNY 400 per month or 3,600 per year depending on the type of qualified continued education); mortgage interest (CNY 1,000 per month); rental expense (CNY 800, 1,100, or 1,500 per month depending on the location); elderly care (up to CNY 3,000 per month depending on the status of the taxpayer); major medical expense (qualified self-paid portion above CNY 15,000 and capped at CNY 80,000 per year for each eligible individual); care expense for children under the age of 3 (CNY 2,000).

Charitable contributions to qualified domestic non-profit organisations are deductible up to 30% of taxable income.

Losses from privately-owned businesses and sole proprietorship enterprises can be carried forward for five years.

Special expatriate tax regime

Residents are subject to individual income tax on their worldwide income. Non-residents are generally taxed only on their China-sourced income.
For the rates applied on non-residents' income derived from employment, remuneration for labour services, author’s remuneration, and royalties, see the table above.

Certain categories of income are considered China-sourced income regardless of whether the payments are made within China or not, including:

• Income derived from employment or contracted labour services performed within the territory of China
• Rental income in relation to property used within the territory of China
• Income derived from the transfer of real property located within China or other property transfer transactions incurred within the territory of China
• Income derived through the grant of various franchises to be used within the territory of China
• Interest and dividend income paid by companies, enterprises, other organisations, or resident individuals within the territory of China.

When calculating taxable employment income for non-residents, IIT law only allows the standard basic deduction of CNY 5,000 per month.
Foreign individuals are subject to deed tax and stamp duty upon the purchase of real property in China.