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China

Wholly Foreign-Owned Enterprise (WFOE)

Taxes

Tax residency – A company is tax resident in China if it is incorporated or its place of effective management is in China.

Basis – Tax resident entities are taxed on their worldwide income.

Tax rate – The standard corporate income tax rate is 25%. Reduced rates of 20%, 15% and 10% may apply to small companies and companies engaging in technology activities or other state encouraged business activities.

Capital gains – Generally, capital gains are treated as ordinary income and subject to the standard rates.

Dividends – Dividends received from foreign entities are subject to corporate income tax at standard rates. There are exemptions available for dividends received from resident entities.

Interests – Interests received are subject to corporate income tax and taxed at standard rates.

Royalties – Royalties received are subject to corporate income tax and taxed at standard rates.

Withholding Taxes – Dividends paid to non-resident entities or individuals are subject to an effective withholding tax of 10% (lowered from the 20% statutory rate), unless rate is reduced under a tax treaty. A deferral of withholding tax is available for profits distributed which are reinvested into encouraged investment projects.

Interests and royalties paid to non-residents are subject to a 10% withholding tax (lowered from the 20% statutory rate), unless rate is reduced under a tax treaty, and V.A.T. at 6%. V.A.T. on royalties may be waived if they are paid for the transfer of qualified technology.

Technical service fees paid to a non-resident are subject to withholding tax at corporate income tax standard rates (25%) on a net-profit basis, unless tax rate is reduced under a tax treaty. Service fees are also subject to 6% V.A.T.

Foreign-source income – Foreign-source income is generally subject to corporate income tax. A tax credit for foreign tax paid may be available.

Losses – Losses may be carried forward for 5 years. The carry back of losses is not permitted.

Inventory – Inventory may be valued via first in first out (FIFO), weighted average, or specific identification methods.

Anti-avoidance rules – Transactions between related entities must be conducted at arm’s length and certain documentation must be filled. Accept transfer pricing methodologies are the comparable uncontrolled price, resale price, cost plus, transactional net margin, profit split, among others.

Chinas has thin capitalization rules, excessive interest expense from related party financing is non-deductible for tax purposes if the entity’s debt-to-equity ratio exceeds 2:1.

CFC legislation provides that resident entities must include in taxable income their relevant share of the undistributed profits of a CFC, if the CFC income are higher than a threshold amount.

A subsidiary is deemed as a CFC if it is incorporated in a jurisdiction with an effective tax rate lower than 12.5%.

Labor taxes – Employers and employees are usually required to make social security contributions in relation to pension, medical, unemployment, maternity, and work-related injury. The contribution rate and base vary from city to city, but it is usually around 10% for employees and 30% for employers. The contribution base is usually capped at 300% of the City Average Salary.

Tax Credits and Incentives – There are several industries which are state encouraged and enjoy tax exemptions and incentives:

  • Agriculture, forestry, animal-husbandry, and fishery projects - Exemption or 50% reduction
  • Specified basic infrastructure projects - 3 years tax holiday + 3 years 50% reduction
  • Environment protection projects and energy/water conservative projects - 3 years tax holiday + 3 years 50% reduction
  • Qualified new/high tech enterprises established in Shenzhen, Zhuhai, Shantou, Xiamen, Hainan, and Pudong New Area of Shanghai after 1 January 2008 - 2 years tax holiday + 3 years 50% reduction
  • Software enterprises established before 31 December 2017 - 2 + 3 years tax holiday
  • Integrated circuits design enterprises established before 31 December 2017 - 2 years tax holiday + 3 years 50% reduction
  • Integrated circuits production enterprises established before 31 December 2017 with a total investment exceeding CNY 8 billion or that produce integrated circuits with a line-width of less than 0.25um, provided that its operation period exceeds 15 years - 5 years tax holiday + 5 years 50% reduction
  • Integrated circuits production enterprises established before 31 December 2017 that produce integrated circuits with a line-width of less than 0.8um - 5 years tax holiday + 5 years 50% reduction
  • Integrated circuits production enterprises or projects invested after 1 January 2018 that produce integrated circuits with a line-with of less than 130nm, provided that its operation period exceeds 10 years - 2 years tax holiday + 3 years 50% reduction
  • Integrated circuits production enterprises or projects invested after 1 January 2018 with a total investment exceeding CNY 15 billion or that produce integrated circuits with a line-with of less than 65nm, provided that its operation period exceeds 15 years - 5 years tax holiday + 5 years 50% reduction
  • Qualified integrated circuits packaging/testing enterprises established before 31 December 2017 - 2 years tax holiday + 3 years 50% reduction
  • Qualified enterprises that manufacture key parts or equipment used for the production of integrated circuits established before 31 December 2017 - 2 years tax holiday + 3 years 50% reduction
  • Qualified energy-saving service enterprises - 3 years tax holiday + 3 years 50% reduction Encouraged enterprises in underprivileged areas of Xinjiang - 2 years tax holiday + 3 years 50% reduction
  • Projects involving a clean development mechanism (CDM) - 3 years tax holiday + 3 years 50% reduction
  • Certified animation enterprises that produce self-developed animation products established before 31 December 2017 - 3 years tax holiday + 3 years 50% reduction

Venture capital funds may use 70% of its investment amount to offset against the taxable income of the venture capital enterprise in the year after the holding period has reached two years.

There are other tax credits and incentives for R&D and purchases of equipment for environmental protection. 

 Personal income tax – Individuals domiciled in mainland China are subject to tax on their worldwide income.

Non-domiciled individuals staying in China less than 1 year are subject to tax on their China-source income. Non-domiciled individuals staying in China for one year or more, but less than 5 years are subject to tax on China-source income and foreign-source income borne by Chinese entities or establishments. Non-domiciled individuals staying in China more than 5 consecutive years are taxed on their worldwide income.

Domiciled individuals are those individuals who maintain residence in China because of their legal residency status, family, or economic ties and who habitually reside in China

Income tax rates are progressive up to 45%. Investment income, such as dividends are generally taxed at 20%. Capital gains are generally subject to a 20% tax.

Other taxes – There is a real property tax of 1.2%. There is a deed tax at rates between 3% and 5% on the total value of land use rights or building ownership rights when transferred. There is a land appreciation tax imposed on gains realized on the transfer of real estate. Tax is between 30% to 60%.

The V.A.T. standard tax rate is 17%. Lower rates of 11% and 3% apply to certain goods and services. Certain transactions are exempt from V.A.T.

  • Tax transparent entity
  • Offshore Income Tax Exemption
  • Offshore capital gains tax exemption
  • Offshore dividends tax exemption
  • CFC Rules
  • Thin Capitalisation Rules
  • Patent Box
  • Tax Incentives & Credits
  • Property Tax
  • Wealth tax
  • Estate inheritance tax
  • Transfer tax
  • Capital duties
  • 25% Offshore Income Tax Rate
  • 25% Corporate Tax Rate
  • 25% Capital Gains Tax Rate
  • 25% Dividends Received
  • 10% Dividends Withholding Tax Rate
  • 10% Interests Withholding Tax Rate
  • 10% Royalties Withholding Tax Rate
  • 5 Losses carryback (years)
  • 0 Losses carryforward (years)
  • Average costFIFO Inventory methods permitted
  • 10% Social Security Employee
  • 30% Social Security Employer
  • 45% Personal Income Tax Rate
  • 17% VAT Rate
  • 110 Tax Treaties

Country details

China
CNY
Beijing
Asia
z h - C N , y u e , w u u , d t a , u g , z a
1330044000

China, officially the People’s Republic of China (PRC), is a unitary sovereign state in East Asia, bordering with Afghanistan, Pakistan, Nepal, India, Myanmar, Laos, Vietnam, North Korea and Russia, among others. It is the most populous country in the world, with more than 1300 million inhabitants. The country has some of the world’s most populous metropolitan areas, as Beijing, its capital, where more than 17 million people live. Shanghai, the most populated, with over 23 million inhabitants, Guangzhou (15 million) and Shenzhen (13 million).

The country is divided into twenty-two provinces, five autonomous regions, four municipalities under central jurisdiction – Beijing, Tianjin, Shanghai and Chongqing – and two special administrative regions – Hong Kong and Macao.

Its official currency is the Renminbi (CNY), being the Yuan its basic unit. Until 2005, it was pegged to the dollar. Since then, it is pegged to a basket of several international currencies and allowed to float in a 2% margin. In 2010, it was established an offshore currency CNH. Unlike CNY, CNH is allowed to trade freely outside China, and its rate is almost entirely determined by foreign currency markets. However, The People’s Bank of China exerts a great influence, and the CNH rate tends to be close to the CNY rate.

China is an emerging superpower. Since the introduction of the 1978 economic reforms, China has been the world’s fastest-growing economy. Reaching world dominance in terms of GDP measured in purchasing power parity in 2014 and remaining the second largest power for nominal GDP. China is also the largest exporter and importer of goods and the first industrial and merchant power.

Tax treaties

Country Type Date Signed
Ukraine DTC  1995-12-04
South Africa DTC  2000-04-25
Oman DTC  2002-03-25
Bangladesh DTC  1996-09-12
Sudan DTC  1997-05-30
New Zealand DTC  1986-09-16
Israel DTC  1995-04-08
Mauritius DTC  1994-08-01
Bahamas, The TIEA 2009-12-01
Iran DTC  2002-04-20
Cyprus DTC  1990-10-25
Korea, Republic of DTC  1994-03-28
Kazakhstan DTC  2001-09-12
Netherlands DTC  1987-05-13
Iceland DTC  1996-06-03
Czech Republic DTC  2009-08-28
Finland DTC  2010-05-25
Moldova, Republic of DTC  2000-06-07
Russian Federation DTC  1994-05-27
Uganda DTC  2012-01-11
Trinidad and Tobago DTC  2003-09-18
Canada DTC  1986-05-12
Former Yugoslav Republic of Macedonia DTC  1997-06-09
Indonesia DTC  2001-11-07
Lithuania DTC  1996-06-03
Seychelles DTC  1999-08-26
France DTC  1984-05-30
Latvia DTC  1996-06-07
Norway DTC  1986-02-25
United States DTC  1984-04-30
Bermuda TIEA 2010-12-03
Venezuela DTC  2001-04-17
Turkmenistan DTC  2009-12-13
San Marino TIEA 2012-07-09
Portugal DTC  1998-04-21
Hong Kong, China DTC  2003-12-10
Argentina TIEA 2010-12-13
Romania DTC  1991-01-16
Belgium DTC  2009-10-07
Ethiopia DTC  2009-05-14
Zambia DTC  2010-07-26
Jersey TIEA 2010-10-29
Ecuador DTC  2013-01-21
Lao People's Democratic Republic DTC  1999-01-25
Egypt DTC  1997-08-13
Cuba DTC  2001-04-13
Croatia DTC  1995-01-09
Macao, China DTC  2009-07-15
Guernsey TIEA 2010-10-27
Italy DTC  1986-10-31
Serbia DTC  1997-03-21
Jamaica DTC  1996-07-04
Papua New Guinea DTC  1994-07-14
Kuwait DTC  1989-12-25
India DTC  1994-07-18
Algeria DTC  2006-11-06
Thailand DTC  1986-10-27
Denmark DTC  2012-06-16
Cayman Islands TIEA 2011-09-26
Malaysia DTC  1985-11-23
Germany DTC  2014-03-28
Spain DTC  1990-11-22
Australia DTC  1988-11-17
Qatar DTC  2001-04-02
Switzerland DTC  2013-09-25
Nepal DTC  2001-05-14
Brunei Darussalam DTC  2004-09-21
Slovakia DTC  1987-06-11
Luxembourg DTC  1994-03-12
United Kingdom DTC  1984-07-26
Philippines DTC  1999-11-18
Georgia DTC  2005-06-22
Tunisia DTC  2002-04-16
Turkey DTC  1995-05-23
Mexico DTC  2005-09-12
Armenia DTC  1996-05-05
Slovenia DTC  1995-02-13
Hungary DTC  1992-06-17
United Arab Emirates DTC  1993-07-01
Nigeria DTC  2002-04-15
Botswana DTC  2012-04-11
Tajikistan DTC  2008-08-27
Saudi Arabia DTC  2006-01-23
Kyrgyzstan DTC  2002-06-24
Liechtenstein TIEA 2014-01-27
Bulgaria DTC  1989-11-06
Poland DTC  1988-06-07
Bosnia and Herzegovina DTC  1988-12-02
Barbados DTC  2000-05-15
Sweden DTC  1986-05-16
Isle of Man TIEA 2010-10-26
Syrian Arab Republic DTC  2010-10-31
Sri Lanka DTC  2003-08-11
Viet nam DTC  1995-05-17
Japan DTC  1983-09-06
Mongolia DTC  1991-08-26
Brazil DTC  1991-08-05
Estonia DTC  1998-05-12
Greece DTC  2002-06-03
Ireland DTC  2000-04-19
Morocco DTC  2002-08-27
Uzbekistan DTC  1996-07-03
Bahrain DTC  2002-05-16
Singapore DTC  2007-07-11
Albania DTC  2004-09-13
Malta DTC  2010-10-23
Austria DTC  1991-04-10
Belarus DTC  1995-01-17
Azerbaijan DTC  2005-03-17
Pakistan DTC  1989-11-15

Procedures

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