Taxes in China
Since doing business in China is currently very popular, it is good to have a clear picture of the tax rates that apply in China. You have to take into account the following tax rates when doing business in China:
The tax on an individual’s income is progressive. In the year 2011, an individual’s income is taxed progressively at 5% to 45%. The table hereinafter relates to income from a salary. Income from other business is taxable at 5% to 35%. Passive income such as interest and royalties is taxable at a fixed rate of 20%.
Income Tax Rates in China for an Individual in the year 2011:
Tax % Monthly Income (CNY)
5% 1 - 500
10% 501 - 2,000
15% 2,001 - 5,000
20% 5,001 - 20,000
25% 20,001 - 40,000
30% 40,001 - 60,000
35% 60,001 - 80,000
40% 80,001 - 100,000
45% 100,001 and above
Note that 100,000 Chinese Yuan equals to EUR 10801.82 (exchange rate at May 31, 2011).
The social security in China consists of the basic pension (around 20% for the employer and 7% for the employee), personal accounts and additional payment. The corporate tax rate for domestic and foreign companies is 25% in the year 2011. In certain cases, small companies pay only 20% corporate tax.
Capital gains, realized by an individual, are taxable in China at the rate of 20% and the capital gains tax for a Chinese company is added to the regular tax. For capital gains, realized by a foreign company in China, a 10% deduction at source is made.
When you make a capital gain from the sale of real estate, the calculation of the capital gain tax is different. In this case you have to deduct the purchase cost from the sale price at the 20% rate. When the capital gains are in excess of 50% of the purchase price, the rate of capital gains tax fluctuates between 30% - 60%. (It is 60% when the capital gain is over 200% when compared to the cost).
Dividend, interest and royalties, paid to foreign parties, are all bject to a withholding tax of 10%.
China has double tax treaties with more than 90 countries worldwide. In almost all these tax treaties, the withholding tax on dividend, interest and royalties remains 10%. One exception for instance is Ireland, in which the withholding tax on dividend is reduced to 5% when the dividends are paid to a company that holds directly at least 25% of the voting power of the company paying the dividends.
The withholding tax on dividends between Ireland and the Netherlands or Cyprus is zero.
As you can see, if you consider to invest in share capital in China, professional tax advice is vital. It can increase your return on investment by 5% by saving 5% withholding tax on dividends.
Recently, China’s newly revised Criminal Law has removed 13 offences from the list of 68 crimes punishable by death, according to the annual work report of the Supreme People’s Court. It was the first time the People’s Republic of China has reduced the number of crimes subject to the death penalty since the Criminal Law took effect in 1979.
The 13 crimes were economic-related non-violent offences, including the false issuance of exclusive value-added tax invoices to defraud export tax refunds or to offset taxes and the forging or selling of forged exclusive value-added tax invoices. The court is expected to introduce a unified guideline over the use of the death sentence soon.
Sources:
www.china.org.cn
www.deloitte.com
www.worldwide-tax.com
The tax on an individual’s income is progressive. In the year 2011, an individual’s income is taxed progressively at 5% to 45%. The table hereinafter relates to income from a salary. Income from other business is taxable at 5% to 35%. Passive income such as interest and royalties is taxable at a fixed rate of 20%.
Income Tax Rates in China for an Individual in the year 2011:
Tax % Monthly Income (CNY)
5% 1 - 500
10% 501 - 2,000
15% 2,001 - 5,000
20% 5,001 - 20,000
25% 20,001 - 40,000
30% 40,001 - 60,000
35% 60,001 - 80,000
40% 80,001 - 100,000
45% 100,001 and above
Note that 100,000 Chinese Yuan equals to EUR 10801.82 (exchange rate at May 31, 2011).
The social security in China consists of the basic pension (around 20% for the employer and 7% for the employee), personal accounts and additional payment. The corporate tax rate for domestic and foreign companies is 25% in the year 2011. In certain cases, small companies pay only 20% corporate tax.
Capital gains, realized by an individual, are taxable in China at the rate of 20% and the capital gains tax for a Chinese company is added to the regular tax. For capital gains, realized by a foreign company in China, a 10% deduction at source is made.
When you make a capital gain from the sale of real estate, the calculation of the capital gain tax is different. In this case you have to deduct the purchase cost from the sale price at the 20% rate. When the capital gains are in excess of 50% of the purchase price, the rate of capital gains tax fluctuates between 30% - 60%. (It is 60% when the capital gain is over 200% when compared to the cost).
Dividend, interest and royalties, paid to foreign parties, are all bject to a withholding tax of 10%.
China has double tax treaties with more than 90 countries worldwide. In almost all these tax treaties, the withholding tax on dividend, interest and royalties remains 10%. One exception for instance is Ireland, in which the withholding tax on dividend is reduced to 5% when the dividends are paid to a company that holds directly at least 25% of the voting power of the company paying the dividends.
The withholding tax on dividends between Ireland and the Netherlands or Cyprus is zero.
As you can see, if you consider to invest in share capital in China, professional tax advice is vital. It can increase your return on investment by 5% by saving 5% withholding tax on dividends.
Recently, China’s newly revised Criminal Law has removed 13 offences from the list of 68 crimes punishable by death, according to the annual work report of the Supreme People’s Court. It was the first time the People’s Republic of China has reduced the number of crimes subject to the death penalty since the Criminal Law took effect in 1979.
The 13 crimes were economic-related non-violent offences, including the false issuance of exclusive value-added tax invoices to defraud export tax refunds or to offset taxes and the forging or selling of forged exclusive value-added tax invoices. The court is expected to introduce a unified guideline over the use of the death sentence soon.
Sources:
www.china.org.cn
www.deloitte.com
www.worldwide-tax.com