Value-added tax (VAT)
The sales or importation of goods, the provision of services, and the sales of intangible properties and immovable properties are subject to VAT. For general VAT payers, input VAT can be credited against output VAT.
The applicable VAT rate for general VAT payers from 1 May 2018 are set out in the following table, and the rate for small-scale VAT payers is 3%.
||Applicable VAT rate (%)
|Sales or importation of goods
|Sales or importation of necessity goods (e.g. agricultural products, water, gas)
|Provision of repairs, replacement, and processing services
|Tangible movable property leasing services
|Transportation services, postal services, basic telecommunications services, construction services, immovable property leasing services, sales of immovable properties, transfer of land-use right
|Value-added telecommunications services, financial services, modern services (except for leasing services), consumer services, sales of intangible properties (except for land-use right)
|Exportation of goods; exportation of repair, replacement, and processing services; international transportation services and spacecraft transportation services; exported services that are completely consumed outside China, including:
- Research and development (R&D) services.
- Energy performance contracting services.
- Design services.
- Production and distribution services for radio, film, and television programs.
- Software services.
- Circuit design and testing services.
- Information system services.
- Process management services.
- Offshore outsourcing services.
- Transfer of technology.
For taxpayers that are eligible for the above zero rate, generally they may be entitled to a credit or refund of the input VAT incurred.
The VAT refund rate for exported services is the same as the applicable VAT rate. For exported goods, the VAT refund rates range from 0% to 16%. There is a prescribed formula for determining the amount of refund, under which full refund of input VAT is not available to many exported goods and the exporter will suffer different degrees of export VAT costs.
In addition, a few types of qualified exported services may be applicable to the VAT exemption treatment. In that respect, the relevant input VAT incurred cannot be credited or refunded.
Import and export customs duty is levied on goods that are allowed to be imported into or exported based on the relevant customs regulations. The Consignee of imported goods, consignor of export goods, and owner of entry articles are parties held liable for paying customs duties.
The customs classification of import and export goods is the base for the customs supervision, customs taxation, and customs statistics. In 2017, along with the revisions of the classified catalogue in ‘International Convention for Harmonized Commodity Description and Coding System’ made by World Customs Organisation (WCO), large scale adjustments have been made to China’s import and export tariff system.
Import duty is charged in ad valorem, specific, compound, or sliding terms, etc. Ad valorem duty is charged based on the customs valuation of the goods. The dutiable value of the goods is multiplied by an ad valorem duty rate to arrive at the amount of duty payable. Duty collection on an ad valorem basis is the main taxation measure used by most countries, including China. The dutiable value of import and export goods is the taxable value determined by the Customs to levy ad valorem duties on the import and export goods, which is the base to value and levy customs duties payable of import and export goods and import links taxes payable of the import goods.
Import duties are categorised as normal tariff rate, Most Favoured Nation (MFN) tariff rate, contractual tariff rate, preferential tariff rate, tariff-rate quota (TRQ) rate, and temporary tariff rate.
The Country of Origin of imported goods also plays a part in determining the applicability of a number of other trade policies, such as TRQ, preferential tariffs, anti-dumping duty, anti-subsidy duty, etc.
Import and export goods are reduced with or exempted from customs duties, import VAT, and consumption tax according to state regulations.
The importation of raw materials under processing trade is bonded, and customs duty, import VAT, and consumption tax exemption is allowed on the part to be re-exported after processing.
For goods that enter into and exit from the customs special supervision zone, import duties, import VAT, and consumption tax are held over at the time of importation, which are to be exempted for exportation and to be paid for sales from the customs special supervision zone to domestic markets.
A consumption tax is imposed on specified categories of luxury and environmental unfriendly goods, including cigarettes, alcoholic beverages, high-end cosmetics, jewellery, gasoline, automobiles, battery and coating, etc. The tax liability is computed based on the sales amount and/or the sales volume, depending on the goods concerned. Consumption tax is not recoverable but is deductible as an expense for CIT purposes.
Real estate tax
A real estate tax, which is based on the value of the property or rental received, is assessed annually on land and buildings used for business purpose or leased. The tax rate is 1.2% of the original value of buildings. A tax reduction of 10% to 30% is commonly offered by local governments. Alternatively, tax may be assessed at 12% of the rental value. Real estate tax is deductible for CIT purposes.
Urban and township land-use tax
An urban and township land-use tax is levied on taxpayers who utilise land within the area of city, country, township, and mining districts. It is computed annually based on the space of area actually occupied by a taxpayer multiplied by a fixed amount per square metre that is determined by the local governments.
Arable land occupation tax
Arable land occupation tax is levied on companies and individuals who build houses or carry out non-agricultural construction on arable lands. It is computed based on the space of area actually occupied by a taxpayer multiplied by a fixed amount per square metre that is determined by the local governments and is settled in a lump sum.
Land appreciation tax
A land appreciation tax is levied on the gain from the disposal of properties at progressive rates from 30% to 60%. Land appreciation tax is deductible for CIT purposes.
All enterprises and individuals who execute or receive ‘specified documentation’, including 11 types of contracts and a few specified documents, are subject to stamp tax. The stamp tax rates vary between 0.005% on loan contracts to 0.1% for property leasing and property insurance contracts.
A deed tax, generally at rates from 3% to 5%, may be levied on the purchase, sale, gift, or exchange of ownership of land-use rights or real properties. The transferee/assignee is the taxpayer.
For employment income, an employer is obligated to withhold individual income tax from an employee’s salary and settle the payment with the tax authorities on a monthly basis.
Social security contributions
Social security contributions to pension funds, medical funds, etc. are mandatory for both employers and employees in China. Employers are normally required to make social security contributions in relation to pension, medical, unemployment, maternity, and work-related injury for their employees. The percentage of social security benefits borne by employers and employees, as well as the contribution base, vary from city to city.
Urban construction and maintenance tax
Urban construction and maintenance tax is imposed at a certain rate on the amount of China's indirect taxes (i.e. VAT and consumption tax) payable by the taxpayer. Effectively, the taxpayers of indirect taxes are also the taxpayers of urban construction and maintenance tax. It is charged at three different rates depending on the taxpayer's location: 7% for urban areas, 5% for county areas, and 1% for other areas.
Educational surtax is imposed at 3% on the amount of China's indirect taxes (i.e. VAT and consumption tax) payable by the taxpayer. Effectively, the taxpayers of indirect taxes are also the taxpayers of educational surtax.
Local educational surtax
Local educational surtax is levied at 2% on the amount of China's indirect taxes (i.e. VAT and consumption tax) payable by the taxpayer. Effectively, the taxpayers of indirect taxes are also the taxpayers of local educational surtax.
Motor vehicle acquisition tax
A motor vehicle acquisition tax at a rate of 10% of the taxable consideration will be levied on any purchase and importation of cars, motorcycles, trams, trailers, carts, and certain types of trucks.
Vehicle and vessel tax
A vehicle and vessel tax is a tax that is levied on all vehicles and vessels within China. A fixed amount is levied on a yearly basis. Transport vehicles generally are taxed on a fixed amount according to their own weight, with passenger cars, buses, and motorcycles being taxed on a fixed unit amount. Vessels are taxed on a fixed amount, according to the deadweight tonnage.
Vessel tonnage tax
Vessel tonnage tax is levied on any vessel entering into a port inside the territory of China from overseas and is collected by the General Customs. The tax payable is computed based on the net tonnage multiplied by the applicable tax rate that is determined based on the net tonnage and the term of the tonnage tax licence.
The exploitation of natural resources, including crude oil, natural gas, coal, salt, raw metallic metals, and non-metallic metals, etc., is subject to resource tax on a sales turnover or tonnage/volume basis. The range of tax rates are specified by the State Council.
Resource tax is collected on the usage of water in 10 provinces on a trial basis.
Environmental protection tax (EPT)
China’s legislative body passed the Environmental Protection Tax Law (EPT Law) at the end of 2016. The EPT Law became effective on 1 January 2018 and replaced the previous pollutant discharge fees. EPT is collected from enterprises that directly discharge taxable pollutants (i.e. air pollutants, water pollutants, solid waste, and noise pollution) within the territory of China. EPT is calculated based on the volume of pollutants discharged, multiplied by the specific EPT amount.
Tobacco tax is levied on taxpayers who purchase tobacco leaves within the territory of China. The tax is assessed at the rate of 20% on the purchasing value and shall be settled with the local tax bureau at the place of the purchase.
Cultural business development levy
Companies and individuals engaged in entertainment and advertising businesses shall pay cultural business development levy at 3% on the relevant income.