Post on 01-Jul-2015
China Tax Presentation
January 21, 2009
Richard Tan
Ge Wang
Part I Overview of China
PEOPLE’S REPUBLIC OF CHINA
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China Tax Jan 21, 2009 5
Chinese Totem
Dragon
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Location
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Situated in eastern Asia on the western shore of the Pacific Ocean
An area of 9.6 million square kilometers.
Continental coastline extends for about 18,000 kilometers.
Its vast sea surface is studded with more than 5,000 islands, of which Taiwan and Hainan are the largest.
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Overview
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Almost 4,000 years of recorded history , one of
the world's most ancient civilizations.
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The most populous country in the world,
containing about 1/5 of the world's total
population.
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Many different ethnic groups, languages and
religions exist throughout the country.
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The Four Great Inventions of Ancient China
Printing
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Paper making
The Four Great Inventions of Ancient China
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Gunpowder
The Four Great Inventions of Ancient China
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Compass
The Four Great Inventions of Ancient China
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Confucius
Notable figures
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Notable figures
Qin Shi Huang
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Mao Ze Dong
Notable figures
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Yao Ming
Notable figures
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Zhang Zi Yi
Notable figures
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Place of Interest
The Forbidden City
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The Great Wall
Place of Interest
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Temple of Heaven
Place of Interest
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Terracotta Army
Place of Interest
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Guilin
Place of Interest
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Jiu zhai
Place of Interest
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The Bird’s Net Olympic Stadium
Water Cube
Place of Interest
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Culture
Beijing Opera
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Dragon Dance
Culture
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Chinese Kung Fu
Culture
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Chinese Kung Fu
Culture
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Chinese Kung Fu
Culture
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Tradition Spring Festival
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Spring Festival
Tradition
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Mid-Autumn Day
Tradition
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Mid-Autumn Day
Tradition
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Dragon Boat Festival
Tradition
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Dragon Boat Festival
Tradition
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Chinese Food Lu Cuisine
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Chuan Cuisine
Chinese Food
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Yue Cuisine
Chinese Food
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Min Cuisine
Chinese Food
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Hui Cuisine
Chinese Food
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Xiang Cuisine
Chinese Food
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Su Cuisine
Chinese Food
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Zhe Cuisine
Chinese Food
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Part II Overview of China Tax
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Overview of China Tax
Tax revenue
491/21/2009
Sources of law
Tax administration
Major taxes
Income taxes
Tax treaties
Brief comparison with US tax system
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I. Tax Revenue
50
Billion RMB
1999 2000 2001 2002 2003 2004 2005 2006 2007
Tax Revenue 1031.50 1266.58 1516.55 1699.66 2046.61 2571.80 3086.58 3763.63 4944.93
GDP 8967.70 9921.45 10965.52 12033.27 13582.28 15987.83 18386.79 21087.10 24661.90
Percentage 11.50% 12.77% 13.83% 14.12% 15.07% 16.09% 16.79% 17.85% 20.05%
0
5000
10000
15000
20000
25000
30000
1999 2000 2001 2002 2003 2004 2005 2006 2007
Tax Revenue
GDP
Billion RMB
Data source: China National Bureau of Statistics and China State Administration of Taxation
1/21/2009
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II. Sources of Law
51
Structure of political system in China
National People’s
Congress
(NPC)
State
Council
Ministry of Finance
(MOF)
State Administration
of Taxation (SAT)Other ministries
and bureaus under
the State Council
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II. Source of Law
Constitution
521/21/2009
Laws promulgated by the National People’s
Congress (“NPC”) or its Standing Committee
Regulations promulgated by the State Council
Measures and Notices issued by the Ministry
of Finance (“MOF”) or the State
Administration of Taxation (“SAT”)
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III. Tax Administration
Central government
531/21/2009
The State Administration of Taxation
Local government
Local Tax Bureaus
State Tax Bureaus at local levels (provincial, municipal)
Criticism and reform
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III. Tax Administration
54
Local Tax Bureaus Mainly in charge of Individual Income Tax, Business Tax,
Urban Real estate Tax, Land Appreciation Tax, Deed Tax,
Corporate Income Tax (of corporations established before
2002), etc.
State Tax Bureaus Mainly in charge of Value-added Tax, Consumption Tax,
Corporate Income Tax (of corporations established after
2002), etc.
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IV. Major Taxes
55
Income Taxes
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Turnover Taxes
Property and Behavior Taxes
Others
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IV. Major Taxes
56
Income Taxes
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Individual Income Tax
Corporate Income Tax
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IV. Major Taxes
57
Turnover Taxes
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Value-added Tax
Business Tax
Consumption Tax
Tariff
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IV. Major Taxes
58
Property and Behavior Taxes
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Stamp Tax
Deed Tax
Land Appreciation Tax
Urban Real Estate Tax
Resource Tax
Vehicle/Vessel Tax
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Other Taxes
1/21/2009
Urban Maintenance and Construction Tax
Other minor taxes
IV. Major Taxes
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V-1. Individual Income Tax
60
Taxpayers
1/21/2009
Domiciled in China Subject to tax on world-wide
income.
Not domiciled in China Subject to tax on “China-sourced income” depending on how long the individual stays in China.
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China Sourced Income Foreign Sourced Income
Income paid or borne by employer / establishment in China
Income paid or borne by foreign employer / establishment
Income paid or borne by employer / establishment in China
Income paid or borne by foreign employer / establishment
< 90 / 183 (when tax treaty applies) days
Taxable / / /
90 / 183 (when tax treaty applies) days –1 year
Taxable Taxable / /
1 year – 5 years Taxable Taxable Taxable /
>5 years Taxable Taxable Taxable Taxable
A brief explanation of taxable income and days spent in China
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V-1. Individual Income Tax
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Taxpayers
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Partnerships are transparent entities.
No option for choosing to be treated as taxable entity.
The tax liabilities of partnerships flow directly to the partners.
V-1. Individual Income Tax
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wages and salaries from employment;
business income by industrial and commercial households/entrepreneurs;
Income from contracting for or leasing operations of corporations or institutions;
remuneration for personal services performed by an independent contractor;
remuneration for manuscripts;
royalty income;
interest income, dividends and bonuses;
Income from leasing properties;
Income from assignment or transfer of properties;
contingency income;
other income specified to be taxable by the competent authority.
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Taxable Income
V-1. Individual Income Tax
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Individual Income Tax
64
Tax-exempt Income
Monetary awards granted by the Central Government, provincial Governments, international organizations for achievement in science, education, technology, culture, public health, sport, etc;
Interest on State treasury bonds;
Qualified Subsidies, allowances, welfare benefits, etc.;
Insurance indemnities.
Income of diplomatic representatives;
Tax-exempt income as stipulated in international conventions ;
Tax-exempt income as approved by the finance department of the State Council.
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Monthly Income (RMB¥)Rate (%)
Basic Salary - if Employee pays his/her Tax
If Tax is borne by Employer
¥500 or below (after deduction of RMB¥4,800 for expenses)
¥475 or below (after deduction of RMB¥4,800 for expenses)
5
The part over ¥500[1] to ¥2,000 The part over ¥475 to ¥1,825 10
The part over ¥2,000 to ¥5,000 The part over ¥1,825 to ¥4,375 15
The part over ¥5,000 to ¥20,000 The part over ¥4,375 to ¥16,375 20
The part over ¥20,000 to ¥40,000 The part over ¥16,375 to ¥31,375 25
The part over ¥40,000 to ¥60,000 The part over ¥31,375 to ¥45,375 30
The part over ¥60,000 to ¥80,000 The part over ¥45,375 to ¥58,375 35
The part over ¥80,000 to ¥100,000 The part over ¥58,375 to ¥70,375 40
The part over ¥100,000 The part over ¥70,375 45
Tax rate schedule for wages and salaries, stipulated by Individual Income
Tax Law of China
Tax Rates
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V-1. Individual Income Tax
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Incomes Rate
Business income by industrial and commercial
households/entrepreneurs
Progressive rate from
5% to 35%
Remuneration for personal services performed by an independent
contractor;
Progressive rate from
20% to 40%
Remuneration for manuscripts
20%, with deduction
of 30% in taxable
income
Royalty income, interest income, dividends and bonuses; income
from leasing properties;
income from assignment or transfer of properties;
contingency income
20%
Tax Rates
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V-1. Individual Income Tax
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Tax calculation (salary)
Possible reforms in the future
Tax liability = (Salary amount – standard deduction ) *
applicable tax rate
A higher threshold
Flexible deductions
Joint returns
V-1. Individual Income Tax
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V-2. Corporate Income Tax
68
Corporate Income Tax Law, effective from January 1, 2008
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Detailed Implementation Rules of the Corporate Income Tax
Law
Transitions from old systems to the new unified system
Other Notices and Interpretations issued by the MOF and SAT
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Reform from 2008Before Jan 1, 2008 After Jan 1, 2008
Two previous parallel systems: one for
domestic corporations and the other for
foreign invested corporations
One unified system
General tax rate: 33% General tax rate: 25%
Tax holidays and incentives for foreign
invested corporations;
Preferential tax measure in Special
Economic Zones
Industry-based tax incentives
without geographic limitation
Tax refund for reinvestment Appealed
Thin capitalization, anti-
avoidance measures
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V-2. Corporate Income Tax
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Taxpayers
Resident corporations
Incorporated in China
Incorporated outside of China but effectively managed in China
Subject to tax on worldwide income
Non-resident corporations Subject to tax on China sourced income
V-2. Corporate Income Tax
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Taxable Income
Accrual basis
Monetary and non-monetary revenue
Revenue from sale of goods
Revenue from provision of services
Revenue from transfer of property
Dividends, profit distribution and other returns on equity investment
Interest
Rent
Royalties
Donation, and
Other revenue
V-2. Corporate Income Tax
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Deductions
Reasonable expenses incurred by the corporations in
connection with the deriving of revenue, including costs,
fees, taxes, losses, etc. can be deducted when calculating
taxable income.
Donation, capped at 12% of total annual profit
Loss carry-forward for up to 5 years
V-2. Corporate Income Tax
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Tax Rates
25% for normal resident corporations
20% for qualified small-scale corporations
15% for qualified High and New Technology Corporations
20% normal withholding tax rate for non-resident
corporations, subject to special provisions or tax treaties
V-2. Corporate Income Tax
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Withholding Tax Rates
Dividends – 10%
Interest – 10%
Royalties and fees – 10%, generally subject to additional
Business Tax of 5%
The above rates may be reduced by an applicable tax treaty
V-2. Corporate Income Tax
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Tax Incentives
Exemption or 50% exemption for income from
Encouraged agricultural activities
Qualified infrastructure projects
Qualified Environmental protection projects
Qualified technology transfer
Super deduction for R&D expenses
Accelerated depreciation for technology advancement
V-2. Corporate Income Tax
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Anti-avoidance Rules Thin capitalization
Controlled foreign company
Transfer pricing Cost sharing
Documentation requirements
Foreign tax credit – credit system
V-2. Corporate Income Tax
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VI. Tax Treaties
771/21/2009
Up till Jan 1, 2009, 87 tax treaties plus tax arrangement with Hong Kong and Macau
Australia Belgium Brazil
Canada France Germany
India Japan Kazakhstan
Luxembourg Netherlands
Portugal Russia Singapore
Sweden Switzerland United Kingdom
United States
Reference on OECD Model though China is not an OECD member
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VII. Brief Comparison with
US Tax System No AMT
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No “check-the box rule”
No distinction between “ordinary income” and
“capital gain”
No consolidated filings unless specially
approved
No Branch Tax
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Thank you!
Welcome to China!