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China, People's Republic of Corporate - Income determination

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Taxable income is defined as ‘gross income in a tax year after deduction of non-taxable income, tax exempt income, various deductions, and allowable losses brought forward from previous years’. The accrual method of accounting should be used.

Gross income refers to monetary and non-monetary income derived by an enterprise from various sources, including, but not limited to, the sales of goods, provision of services, transfer of property, dividends, interest, rentals, royalties, and donations.

Non-taxable income refers to fiscal appropriation, governmental administration charges, governmental funds, and other income specified by the central government.

Inventory valuation

Inventory must be valued according to costs. In computing the cost of inventories, the enterprise may choose one of the following methods: first in first out (FIFO), weighted average, or specific identification.

Unrealised gain or loss due to changes in fair value

An unrealised gain or loss due to changes in the fair value of financial assets, financial liabilities, and investment properties held by an enterprise is not taxable/deductible for CIT purpose. The gain/loss is taxable/deductible only when the asset/liability actually is disposed of or realised.

Capital gains

Capital gains are treated in the same way as ordinary income of a revenue-nature for a TRE.

Dividend income

An exemption exists for CIT on dividend derived by a TRE from the direct investment into another TRE except for where the dividend is from stocks publicly traded on the stock exchanges and the holding period is less than 12 months.

Dividends derived by a non-TRE from China are subject to a 10% withholding tax (WHT). Starting from 1 January 2018, if a non-TRE shareholder uses dividends distributed from a China TRE to make direct investment into China or acquire a China TRE from third parties, the non-TRE shareholder is eligible for WHT deferral treatment on the dividends, provided that certain conditions are met. The non-TRE shareholder shall report and settle the deferred tax if it later recoups the investment through equity transfer, equity buyback, liquidation of the China TRE, etc.

Dividends distributed by a foreign investment enterprise out of its pre-2008 profit to its non-TRE shareholder(s) are exempted from WHT.

Interest income

Interest income is treated as ordinary income.

Rental income

Rental income is treated as ordinary income.

Royalty income

Royalty income is treated as ordinary income.

Partnership income

Partnerships registered in China are not subject to CIT. The income of a partnership is taxable at the partners’ level.

Unrealised exchange gains

Unrealised exchange gain (loss) from the year-end translation of assets (liabilities) denominated in foreign currency generally is taxable (deductible).

Foreign income

The worldwide income of a TRE and its branches both within and outside China is taxable. There are no provisions in the CIT law that allow foreign income directly earned by the TRE to be deferred for tax purposes. The CIT law contains a controlled foreign company (CFC) rule under which the unremitted earnings of a foreign company controlled by Chinese enterprises may be taxable in China (see the Group taxation section for more information). A foreign tax credit is allowed for foreign income taxes paid on foreign-source income.


Last Reviewed - 28 June 2019

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