|
(Last updated: 28 Nov 2007)
China’s tax system has changed significantly over recent years with its transition to an open market economy. China’s economic growth and increased numbers of foreign invested enterprises, has influenced the Chinese government to reform its tax system.
These reforms include equalising tax treatment for foreign and domestic enterprises, and bringing China’s tax regulations into conformance with international standards.
Tax policy and administration
The State Administration of Taxation (SAT) and The Ministry of Finance (MOF) are the two main regulatory authorities in China responsible for policy-making and tax administration. China has a system of multi-level tax laws. At the national level, the MOF formulates tax laws which are subsequently enacted by the National People’s Congress.
The SAT is mainly responsible for administration of tax laws and collection of taxes. In 1994 China adopted a central-local taxation sharing model. As a result, the SAT is responsible for China’s central taxes and central-local share taxes (ie. VAT, consumption tax, and Foreign Investment Enterprises income tax, etc) whereas the local tax offices are responsible for local taxes (ie. individual income tax, business tax, etc).
Main types of taxes
Aside from customs duties, the following is a summary overview of the major types of taxes that foreign invested enterprises are liable for:
- Foreign Enterprise Income Tax
Foreign Investment Enterprises, foreign enterprises with establishments in China, and foreign enterprises without establishments in China but have derived income from China will be subject to Foreign Enterprise Income Tax. The National People’s Congress has passed a new law to unify the corporate tax rate for domestic and foreign companies at 25 per cent, taking effect from 1 January 2008.
- Value Added Tax
Enterprises pay value-added taxes (VAT) depending on the nature of their business and products. A VAT export tax rebate system exists for enterprises engaged in import-export, production in China, distribution or retailing activities. However, from 1 July 2007 the Ministry of Finance and State Administration of Taxation has imposed a reduction in VAT refund rates for a broad range of commodities.
- Business Tax
Business taxes are levied on individuals and enterprises providing services (outside the scope of services that VAT is payable), transferring intangible assets and selling immovable properties in China.
- Consumption Tax
Consumption tax is levied on certain luxury consumer items upon either the sale or importation of these goods. These goods include items such as tobacco products, liquor, wine, cosmetics, jewellery, petroleum products, and high value watches, etc.
Austrade can assist you by identifying appropriate service providers in this area, and help you to understand the general issues.
Additional information on taxation can be found on the following websites:
Allens Arthur Robinson - PRC enterprise income tax reform
Deloitte Touche Tohmatsu CPA Ltd - Unification of Enterprise Income Tax, China
Ernst & Young - China Update and Tax Alert
Ernst & Young - China Tax & Investment News
PricewaterhouseCoopers Taxation
|