ChineseBusinessworld.com > Corporate Income Tax

Corporate Income Tax

  • 1. What is Corporate Income Tax ("CIT")?
  • 2. What is taxable income?
  • 3. What are non-deductible costs and expenses?
  • 4. Can interest payment be deductible before tax?
  • 5. Can all my entertainment expenses be deducted before tax?
  • 6. Can donations be deducted before tax?
  • 7. Can property losses be deducted before tax?
  • 8. What is the framework of privileged CIT?
  • 9. How CIT is paid if a foreign investor does not have a permanent establishment in China?
  • 10. When should I do tax filing?
  • 11. What is the implication should I not comply with relevant CIT rules?
  • 12. What is the dispute procedure should I follow where tax disputes arise?
  • 13. How to calculate CIT for capital gains?
  • 14. How to treat the start-up expenses?
  • 15. How fixed assets are depreciated?
    1. What is Corporate Income Tax ("CIT")?
    FIEs are required to pay state income tax at 30% and local income tax at 3% of taxable income. However, the 30% tax can be reduced or even exempted if FIEs meet the requirements for such tax incentives. Furthermore, the 3% is generally waived by local governments for a certain period of time or perpetually to attract and maintain foreign investment.
    2. What is taxable income?
    Taxable income represents total of various production and other incomes deducting all deductible costs and expenses.
    3. What are non-deductible costs and expenses?
    a) Costs of fixed assets (except property purchased or constructed for sales purposes)
    b) Purchase or development costs of intangible assets
    c) Interest on capital
    d) Income tax and local tax payments (except deductible tax payments such as Business Tax or Land Value Appreciation Tax)
    e) Fines for illegal activities and losses arising from the confiscation of property
    f) Late payment surcharges or other fines associated with the payment of certain taxes
    g) The portion of any loss resulting from a natural disaster or accident that is recoverable by insurance compensation or indemnity insurance
    h) Unapproved donations
    i) Royalty payments made by a China establishment of a foreign enterprise to its head office
    j) Any other costs and expenses not relating to production and business operations
    4. Can interest payment be deductible before tax?
    Interest expenses can be deducted when they are not more than the normal commercial lending rates and relate to normal production and business operations of FIEs.
    Interests relating to purchase or construction of fixed assets or the transfer or development of intangible properties should be included in the original value of the assets followed by depreciation by period.
    5. Can all my entertainment expenses be deducted before tax?
    No. There is a cap for deduction of entertainment expenses in line with the revenue of the Company.
    6. Can donations be deducted before tax?
    Donations can only be deducted before tax when they are made to non-profit social charity institutions subject to a ceiling according to the revenue of the company.
    7. Can property losses be deducted before tax?
    Yes. But proper documents evidencing the losses should be filed to local tax authority for approval and filing.
    8. What is the framework of privileged CIT?
    No.
    Item
    Tax Rate
    1
    Geographical policy
    Production-oriented enterprises established in
    a) Special Economic Zone, and Economic & Technology Development Zone
    b) Coastal area
    15%
    24%
    2
    Newly established enterprise policy
    Production-oriented enterprises with operating period over 10 years
    First 2-year exemption followed by 3-year half deduction
    3
    Re-investment policy
    Re-invest the profit of FIE to itself or set up another FIE
    40% refund of the paid CIT
    4
    Withholding tax
    a) Dividend from FIE
    b) Interest of the loan from international financial institutions to Chinese government
    c) Interest of the loan from foreign bank to Chinese bank
    d) Royalties for R&D, resource development, public transportation, production of agriculture, forest, and animal husbandry, and development of important technology
    0%
    0%
    0%
    0-10%
    9. How CIT is paid if a foreign investor does not have a permanent establishment in China?
    CIT should be paid by a withholding agent, who usually is the payer in China.
    Any income derived from China such as interest, rental, royalty, etc., shall be normally taxed at 20% on the gross incomes. However, if the taxpayer's homeland has entered tax treaties with China, the tax rate shall be reduced to 10%.
    10. When should I do tax filing?
    No.
    Type of return
    Time limit
    1
    Quarterly tax return
    Within 15 days after each quarter
    2
    Annual return
    By the end of April each year
    3
    Withholding tax return
    Within 5 days after the payment is made
    11. What is the implication should I not comply with relevant CIT rules?
    No.
    Types of non-compliance
    Fine
    1
    Failure to pay tax on a timely basis
    0.05% per day on the balance due
    2
    Failure to do, change or cancel tax registration, or submit tax return and financial statements within time limit
    RMB 5,000 or less
    3
    Failure of the reset time limit in above 2
    RMB 10,000 or less, or criminal responsibility
    4
    Tax evasion
    Up to 5 times of the amount in default, or even criminal penalty
    12. What is the dispute procedure should I follow where tax disputes arise?
    No. of step
    Party to take action
    Action to take
    Time limit
    1
    Taxpayer
    Pay tax
    As stipulated by tax law
    2
    Taxpayer
    a) Apply to the tax authority at a higher level for reconsideration
    b) or directly go to step 4
    Within 60 days from the receipt date of tax penalty notification
    3
    Tax authority at a higher level
    Make a decision on the application in a) of Step 2
    Within 60 days after receipt of the application for reconsideration
    4
    Taxpayer
    Institute legal proceedings to the People's Court if not satisfied.
    Within 15 days from the date of receipt of the notification on the decision made on the reconsideration by the higher tax authority, or within 15 days from the date of tax penalty notification if direct legal proceedings instead of reconsideration is adopted.
    13. How to calculate CIT for capital gains?
    There is no specific rule on capital gains currently in China. Capital gains should be consolidated to profit and loss of the company and pay corporate income tax if taxable income is arrived.
    14. How to treat the start-up expenses?
    They should be amortized over 5 years starting from the following month of business operation.
    15. How fixed assets are depreciated?
    Fixed assets should be normally depreciated using straight line method with 10¥ residual value. Other depreciation method can only be adopted when proper filing to local tax authority is made.
    No.
    Types of Fixed Assets
    Depreciation years
    1
    Buildings and structures
    20 years
    2
    Trains, ships, machinery, mechanical equipment and other production equipment
    10 years
    3
    Electronic equipment, means of transport other than trains and ships, appliances, tools, furniture etc. related to production or business operations
    5 years