By Marc Walsh on September 7, 2017

Tax in China: A Guide for Australian Businesses

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Tapping into the Chinese market is a dream for many Australian businesses. After all, the value of consumer goods imported into China in 2014 was nearly AUD $2.5 trillion. One of the world’s largest countries, China also has one of the world’s fastest growing economies. By 2015, more than 490,000 foreign-invested enterprises were established in China. Is there a place for your business to fit into this lucrative market? 

As you weigh the pros and cons of expanding your business to China, it’s wise to consider how taxation will affect your operations. In this post, we’ll discuss some of the types of taxes that enterprises in China are responsible for.

 

Types of Taxes in China

Just like in Australia, China taxes businesses in several different ways. Here are the basics:

Value Added Tax

In China, Value Added Tax is a national tax levied on the sales of goods as well as imports, repairs, and maintenance services. VAT is also charged on leasing services, transfer of land use rights, transportation, postal services, basic telecommunications, construction, and the lease or sale of real property.

Consumption Tax

Luxury goods such as tobacco, wines, and cosmetics are subject to Consumption Tax, which can run as high as 45%.

Income Tax

In an effort to encourage the development of the high tech industry, China has a 15% income tax on high tech enterprises while general enterprises pay 25%. Income of foreign enterprises with an establishment in China runs between 10% and 20%.

Customs Duty

Import duties vary for different countries or regions. China offers preferential rates to imports coming from countries or regions with which they’ve signed reciprocal tariff clause agreements. Otherwise, imports are subject to the general rates.

 

How to decide if you need a CFO

 

Regulations and Administration

China’s tax year is the calendar year, and filing and payment deadlines vary depending on the type of tax. For instance, Enterprise Income Tax is due within 15 days after the end of each quarter.

Tax policy and legislation are developed jointly by two entities: the Ministry of Finance and The State Administration of Taxation (SAT). Local state tax bureaus work with the SAT to collect taxes that create revenue for the central government.

 

Other Business-Related Taxes

Be aware of the following business-related taxes as you make decisions about expansion into China.

Urban Land Use Tax

When businesses use state-owned land, they’re subject to the urban land use tax. This tax is calculated on a yearly basis, and the tax rate depends on the land’s location.

Real Estate Tax

Levied on an annual basis and payable in instalments, real estate taxes are determined by local tax authorities. If your company uses a building that it owns, it’s subject to a 1.2% tax on the original value of the real estate. If your business rents out a building, you’ll pay taxes on the rental income; this tax is usually about 12%.

Vehicle and Vessel Usage Tax

If your business will use vehicles and vessels in China, you’ll be assessed the vehicle and vessel usage tax on an annual basis. It will be paid along with the compulsory traffic accident liability insurance, which is required for all motor vehicles.

Stamp Duty

Leasing agreements, loan agreements, property insurance contracts, and warehousing and storage contracts are all subject to Stamp Duty in China. You’ll also have to pay Stamp Duty on written certificates of transfer of property rights, business account books and permits.

Resource Tax

In China, businesses or individuals who engage in the exploitation of mineral products or salt production are charged a Resource Tax. This tax is paid to the local authorities at the place of production or exploitation.

Staying on top of all of these taxes can be difficult if you’re also trying to run day-to-day operations at the same time. Turning your taxation over to business experts can allow you to focus on what you do best while making sure best practices are followed to the letter. For more information about taxation in China, or to learn about other issues affecting your organisation’s future, reach out to us at Altus Financial.

How to decide if you need a CFO

Marc Walsh

As a Principal Client Adviser at Altus, I work with business owners of SME’s that have a business vision or a goal they want to achieve. Our clients often work with me to get the best approaches to structuring, cash flow, minimise the risks in their business whilst considering increasing their personal wealth. Let's Connect