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Enterprise Income Tax

Taxes levied on foreign-invested enterprises (FIEs) in China mainly include enterprise income tax, value-added tax (VAT), and consumption tax, while businesses involving the provision of agency services have to pay business tax.

7.1  Enterprise Income Tax

Taxpayer

According to the Enterprise Income Tax Law (effective on 1 January 2008) promulgated in March 2007, enterprises and other organisations in China receiving incomes are required to pay enterprise income tax. (This law is not applicable to sole proprietorships and partnerships). Enterprises are classified into resident enterprises and non-resident enterprises. Resident enterprises referred to in this law are those incorporated within the territory of China according to Chinese law, or those incorporated according to the laws of foreign countries (or regions) but their place of effective management is in China. Non-resident enterprises referred to in this law are those incorporated according to the laws of foreign countries (or regions) and their place of effective management is not in China but they have establishments or venues in China, or they do not have any establishments or venues in China but derive income from sources in China.

Entities subject to Enterprise Income Tax

Resident enterprises have to pay enterprise income tax on their income derived from sources in and outside China. Non-resident enterprises that have establishments or venues in China have to pay enterprise income tax on their income derived from sources in China, as well as income derived from sources outside China but is effectively connected with their establishments or venues. Non-resident enterprises that do not have any establishments or venues in China, or those that have establishments or venues in China but whose income is not effectively connected with their establishments or venues, have to pay enterprise income tax on their income derived from sources in China.

Tax Rates  

  • The rate of enterprise income tax is 25%.
  • Non-resident enterprises that do not have any establishments or venues in China, or those that have establishments or venues in China but whose income is not effectively connected with these establishments or venues, have to pay tax of 20% on the income derived from sources in China.

Method of Computation

Taxable income = total annual income of enterprise - (income not subject to taxation + income exempted from taxation + deductible items + losses in previous years permitted to be offset)

Tax payable = (taxable income of enterprise x applicable tax rate) - tax reductions and exemptions as stipulated in the concession provisions of the enterprise income tax law

Filing of Tax Returns

Income tax on FIEs and foreign enterprises is levied on an annual basis and paid in advance in quarterly instalments. Taxpayers should file their quarterly income tax returns with the local tax authorities and pay the tax within 15 days as from the end of each quarter. They should file their annual income tax returns together with their final account statements within four months as from the end of each tax year, and make their final settlement within five months as from the end of the tax year. Any excess will be refunded and any deficiency will have to be paid.

Content provided by Hong Kong Trade Development Council
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