8. 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.
China Tax Jan 21, 2009 8
49. Overview of China Tax
Tax revenue
Sources of law
Tax administration
Major taxes
Income taxes
Tax treaties
Brief comparison with US tax system
China Tax Jan 21, 2009 49
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50. 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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51. 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
52. 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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53. 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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54. 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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55. IV. Major Taxes
Income Taxes
Turnover Taxes
Property and Behavior Taxes
Others
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56. IV. Major Taxes
Income Taxes
Individual Income Tax
Corporate Income Tax
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57. IV. Major Taxes
Turnover Taxes
Value-added Tax
Business Tax
Consumption Tax
Tariff
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58. 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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59. IV. Major Taxes
Other Taxes
Urban Maintenance and Construction Tax
Other minor taxes
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60. 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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61. 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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62. 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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63. 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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64. 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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65. 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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66. 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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67. 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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68. 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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69. 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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70. 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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71. 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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72. 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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73. 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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74. 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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75. 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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76. 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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77. 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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78. 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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