This article is from realtor.org. Please contact the author with any questions.

China's tax laws and policies are made by the National People's Congress and its standing committee, State Council, the Ministry of Finance, State Bureau of Taxation, State Council Customs Duty Regulation Commission, and General Administration of Customs. The main tax law for foreign investors is Foreign Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises, adopted at the Forth Session of the National People's Congress and promulgated by the Order No. 45 of the President of PRC on April 9, 1991. According to Article 5 of the law, the income tax on enterprises with foreign investment and the income tax which shall be paid by foreign enterprises on the income of their establishments or places set up in China to engage in production or business operations shall be computed on taxable income at the rate of 30%. Local income tax shall be computed on taxable income at the rate of 3%. 

Generally, China's tax policy toward foreign invested enterprises grants preferential tax to the industries and regions that are encouraged by China to receive investments. The income tax on enterprises with foreign investment and foreign enterprises established in special economic zones is levied at the reduced rate of 15%. In addition, foreign enterprises that have been operating for more than 10 years may be exempt from enterprise income tax in the first and second profit-making years and enjoy a 50% reduction in the following three years. 

Other taxes that may affect foreign businesses include land-use tax, land value-added tax, housing tax, contract tax, stamp tax, business tax, tax on urban maintenance construction, tax on the occupation of cultivated land and tax on vehicles and ships. There are certain tax treaties that offer foreign businesses operating in China some breaks. China has signed agreements with 60 countries on avoiding double taxation and tax evasion, and 51 agreements of which have gone into effect by July 1999. The first income tax treaty between China and U.S. known as the Agreement for the Avoidance of Double Taxation and the Prevention of Tax Evasion (Sino-U.S. Agreement) was signed in 1984. The agreement aimed "to reduce double taxation of income earned by residents of either country from sources within the other country. Another goal of the agreement was to prevent avoidance of the income taxes imposed by the taxing authority of either country". Under the treaty, China cannot tax U.S. business income unless the business activities in China are "substantial enough to constitute a permanent establishment or fixed base".¹⁶

Foreign investors may also be exempt from personal income tax on the after-tax profits (dividends, bonuses) they obtain from the foreign-funded enterprise. Production and management equipment, building materials and vehicles used for production and other goods imported as part of the total investment may be exempt from import duties, value-added tax and consumption tax. Moreover, in order to competing with other provinces/regions, local governments often have their own incentives for foreign investors. The following chart shows the existing taxes implemented in China. 

TrackBack URI for this entry

Comments (0)

Subscribe to this comment's feed

Show/Hide comments

Show/Hide comment form

Name

Email

Website

Title

Comment

Write the displayed characters

Add Comment