Tannet Group Limited has over 10 year experience about investment in China, the following article is introduce the business and enterprise income tax of China, we do hope it can be useful, and help you to start and run the business in China.

Business Tax:

Business tax is a kind of turnover tax levied on the revenue generated from the provision of taxable services, such as communications and transportation, construction, finance and insurance, posts and telecommunications, culture and sports, entertainment and other taxable services, as well as the transfer of intangible assets and the sale of immovable properties within the territory of China.

(a) Taxpayer:
Payers of business tax are enterprises or individuals engaged in the provision of taxable services, transfer of intangible assets or sale of immovable properties in China.

(b) Taxable Items and Tax Rates:
There are nine taxable items for business tax, ranging from 3% (for communications and transportation) to 20% (for entertainment).

(c) Method of Computation:
The formula for computing business tax is as follows:
Tax payable = business turnover * applicable tax rate

(d) Tax Liability and Payment Period:
The business tax liability arises on the day the taxpayer receives the full amount of business proceeds or obtains a payment voucher for the proceeds. The payment period may be five days, ten days, fifteen days or one month, to be determined by the competent tax authorities.

Enterprise Income Tax:

(a) Taxpayer:
According to the Enterprise Income Tax Law (effective on 1 January 2008) promulgated in March 2007, enterprises and other organizations in China receiving incomes are required to pay enterprise income tax. (This law is not applicable to wholly individually-owned enterprises and Partnership enterprises). Enterprises are classified into resident enterprises and non-resident enterprises. Resident enterprises referred to in this law are those incorporated within the territory of China according to Chinese law, or those incorporated according to the laws of foreign countries (or regions) but their place of effective management is in China. Non-resident enterprises referred to in this law are those incorporated according to the laws of foreign countries (or regions) and their place of effective management is not in China but they have establishments or venues in China, or they do not have any establishments or venues in China but derive income from sources in China.

(b) Target of Taxation:
Resident enterprises have to pay enterprise income tax on their income derived from sources in and outside China. Non-resident enterprises that have establishments or venues in China have to pay enterprise income tax on their income derived from sources in China, as well as income derived from sources outside China but is effectively connected with their establishments or venues. Non-resident enterprises that do not have any establishments or venues in China, or those that have establishments or venues in China but whose income is not effectively connected with their establishments or venues, have to pay enterprise income tax on their income derived from sources in China.

(c) Taxable Items and Tax Rates
‧ The rate of enterprise income tax is 25%.
‧ Non-resident enterprises that do not have any establishments or venues in China, or those that have establishments or venues in China but whose income is not effectively connected with these establishments or venues, have to pay tax of 20% on the income derived from sources in China.

(d) Method of Computation
Taxable income = total annual income of enterprise - (income not subject to taxation + income exempted from taxation + deductible items + losses in previous years permitted to be offset)
Tax payable = (taxable income of enterprise x applicable tax rate) — tax reductions and exemptions as stipulated in the concession provisions of the enterprise income tax law.

(e) Filing of Tax Returns
Income tax on FIEs and foreign enterprises is levied on an annual basis and paid in advance in quarterly instalments. Taxpayers should file their quarterly income tax returns with the local tax authorities and pa’ the tax within 1 5 days as from the end of each quarter. They should file their annual income tax returns together with their final account statements within four months as from the end of each tax year, and make their final settlement within five months as from the end of the tax year. Any excess will be refunded and any deficiency will have to be paid.

For FIEs and foreign enterprises that have no establishment or venue in China but derive incomes from profits, interest, rentals, royalties and other incomes from sources in China, and for those that do have establishments or venues in China but derive incomes that are not effectively connected with such establishments or venues, the income beneficiary should be the taxpayer and the payer should be the withholding agent. The tax should be withheld from the amount of each payment by the payer. The withholding agent should, within five days, turn the amount of taxes withheld on each payment over to the State Treasury and submit a withholding income tax return to the local tax authorities.

All the information and data above is only for reference, for further information, please feel free to contact us.