For more than 30 years since the beginning of the reform and opening up, the taxation system of China has gone through several major reforms, and been improving day by day. In the early days of the reform and opening up, the adaptation to the requirements of opening up and the establishment of foreign-related taxation system are made as the breakthrough points of tax reform. In 1983 and 1984, the reform of "substitution of tax payment for profit delivery" on the state owned enterprises was carried out in two phases, which established the distribution relations between the State and the enterprises within the taxation system. In 1994, China implemented a tax reform with the largest scale, widest scope, most significant effectiveness and furthest-reaching influence since the foundation of new China. This reform focused on the goal of the establishment of socialist market economy system, and actively established the taxation system that met the requirements of socialist market economy system. Since 2003, in accordance with the requirements of the scientific outlook on development, and with the focus on the improvement of socialist market economy system and the goal of building a moderately prosperous society in all respects, China has implemented a series of tax reform in several phases, such as the rural tax and fee reform and the improvement of goods and service tax system, income tax system and property tax system, and the reform on export rebate mechanism. After several reforms, for the present, China has 19 tax categories, i.e. value added tax, consumption tax, business tax, enterprise income tax, individual income tax, resource tax, urban and township land use tax, house property tax, city maintenance and construction tax, tax on the use of arable land, land appreciation tax, vehicle purchase tax, vehicle and vessel tax, stamp tax, deed tax, tobacco leaf tax, customs duty, tonnage dues, and fixed assets investment orientation regulatory tax. Of which, 17 tax categories are to be collected by tax authorities; the fixed assets investment orientation regulatory tax was suspended to be collected as from 2000 as determined by the State Council; customs duty and tonnage dues are to be collected by the customs, in addition, the import value added tax and import consumption tax are to be withheld by the customs.
I. Value Added Tax
The value added tax ("VAT") is imposed on the entity and individual engaged in marketing goods, providing processing, repair or replacements services or importing goods within China. The VAT taxpayer is classified into the general taxpayer and the small-scale taxpayer. As for the general taxpayer, the VAT is imposed on the increment value of its sale (or import) of goods or provision of processing, repair and/or replacements services, the basic tax rate is 17%, the lower tax rate is 13%, and the tax rate for export goods is 0; as for the small-scale taxpayer, a simplified system of computation of tax payable is applied, and the rate is 3%. Generally, the prescribed time limit for paying VAT is 1 month. In addition, based on the amount of VAT payable by the taxpayer, there are other six types of the prescribed time limit for paying VAT, i.e. 1 day, 3 days, 5 days, 10 days, 15 days and 1 quarter, of which the prescribed time limit of 1 quarter only applies to the small-scale taxpayer. The taxpayer shall file tax returns within the period from the 1st day to the 15th day of the next month, and in case tax cannot be paid on the basis of the time limit, the taxpayer may pay tax on each transaction.
II. Consumption Tax
The consumption tax is imposed on the entity and individual engaged in producing, consigned processing, or importing taxable consumer goods within China. The taxation scope covers 14 tax items such as tobacco, alcoholic drinks and alcohol, cosmetics, jewelry and precious stones. The consumption tax payable is assessed respectively under the rate on value method or the amount on volume method on the basis of the volume of sales or the quantity of sales in respect of the taxable consumer goods, in accordance with the tax items specified by the tax laws. The prescribed time limit for paying consumption tax is the same as that for VAT.
III. Business Tax
The business tax is imposed on the entity and individual engaged in providing taxable services, transferring intangible assets or selling immovable property within China. The taxable services cover 7 tax items, such as transportation industry, building industry, and finance and insurance industry。The business tax payable shall be calculated on the basis of the business turnover, amount of transfer or sales volume in respect of the taxable services or taxable activities at the statutory tax rate. The tax rate applicable to entertainment industry is 20%, except that the tax rate applicable to the billiards clubs and bowling halls in such industry is 5%; the tax rate applicable to all the other tax items is 3% or 5%. The prescribed time limit for paying business tax is the same as those for VAT and consumption tax.
IV. Enterprise Income Tax
All enterprises and other income receiving organizations (excluding sole proprietorship enterprises and partnership enterprise) within China shall be the taxpayers of the enterprise income tax. The enterprises are classified into resident enterprises and non-resident enterprises. Resident enterprises shall pay the enterprise income tax for their income sourced within and outside of China. Non-resident enterprises shall pay the enterprise income tax as determined on the basis of whether they have organizations or establishments within China, and whether the income is in fact related to such organizations or establishments. In terms of the enterprise income tax, the balance derived from the total income of an enterprise in each tax year after deducting the tax-free income, tax-exempt income, other deductible items as well as the permitted carry-forward loss of previous year(s) shall be the taxable income. The tax rate is 25%. Enterprise income tax shall be calculated on the basis of a tax year which shall commence on January 1 and end on December 31 of each calendar year. Provisional enterprise income tax shall be paid in advance on a monthly or quarterly basis, finally settled at the end of the year, refunded for any overpayment or supplemented for any deficiency. In other words, an enterprise shall, within 15 days after the end of each month or quarter, submit provisional enterprise income tax returns and make provisional tax payments to the tax authority. The enterprise shall submit an annual enterprise income tax return to the tax authority and settle the amount of tax payable or refundable within 5 months after the end of each year.
V. Individual Income Tax
The individual income tax is imposed on the taxable income derived by individuals (including 11 taxable items, such as the income from wages and salaries derived by the individuals, the income from production, operation derived by individual industrial and commercial households). A progressive tax rate of 7 levels from 3% to 45% is applied to the income from wages and salaries, a progressive tax rate of 5 levels from 5% to 35% is applied to the income from production and business and the income from contracted or leased operation of enterprises or undertakings derived by individual industrial and commercial households (note: which is similarly applied to the investors of sole proprietorship enterprises and partnership enterprises), and a flat tax rate of 20% is applied to all the other types of income. From September 1, 2011, in terms of the income from wages and salaries, the standard monthly deduction for expenses is increased from RMB 2000 to RMB 3500. The prescribed time limit for paying individual income tax is as follows: the tax withheld by the withholding agent on monthly basis, and the tax to be paid by the self-reporting taxpayer on monthly basis, shall be paid to the state treasury within the first 15 days of the following month; in terms of the income from production or business operation derived by individual industrial and commercial households, the tax payable shall be computed on annual basis, and the provisional income tax shall be paid in advance on a monthly basis, settled and refunded for any overpayment or supplemented for any deficiency within 3 months after the end of each tax year; in terms of the income from contracted or leased operation of enterprises and undertakings, the tax payable shall be computed on annual basis and paid to the state treasury within 30 days after the end of each tax year; in terms of the taxpayers who derive income outside China, the tax payable shall be paid to the state treasury within 30 days after the end of each tax year. The taxpayers who have an income of over RMB 120,000 in any tax year shall file the tax returns themselves with the tax authorities within 3 months after the end of each tax year.
VI. Resource Tax
The resource tax is imposed on the entity and individual engaged in exploiting various taxable natural resource. The taxation scope covers 7 major categories, i.e. crude oil, natural gas, coal, other non-medal ores, ferrous ores, non-ferrous ores and salt. The resource tax is collected under the rate on value method and the amount on volume method. The resource tax rate applicable to crude oil and natural gas products is 5% to 10% of the sales volume. In terms of the resource tax, the tax amount standard for other tax items varies from RMB 0.3/ton to RMB 60/ton, depending on the kinds and locations of the resources.
VII. Urban and Township Land Use Tax
The urban and township land use tax is imposed on the land in cities, county towns, administrative towns and industrial and mining districts. The tax shall be levied on the entities and individuals who use the land on the basis of the actual area of the land used at the specified tax amount. The tax amount standard is determined on the basis of big cities, medium-sized cities, small cities and county towns, administrative towns and industrial and mining districts, ranging from RMB 0.6 to 30/m2. The urban and township land use tax is calculated on a yearly basis and paid in installments. The prescribed time limit for paying the tax is to be determined by the people's governments of the provinces, autonomous regions, and municipalities directly under the Central Government in light of the local actual situation.
VIII. House Property Tax
The house property tax is imposed on the houses within the cities, county towns, administrative towns and industrial and mining districts. The tax is calculated on the basis of the residual value or the rental income of the house property. The taxpayers include the house property owners, managing entities of the houses (which are owned by the whole people), pawnees, custodians and users. The tax rate is classified into two categories: where the tax amount payable is calculated on the basis of the residual value of the house property, the applicable tax rate is 1.2%; where the tax amount payable is calculated on the basis of the rental income of the house property, the applicable tax rate is 12%, however, where individuals lease their residential houses at the market price, the applicable rate is 4%. The house property tax is collected on a yearly basis and paid in installments. As from January 1, 2009, foreign-invested enterprises, foreign enterprises and organizations, and foreign individuals (including Hong Kong, Macau and Taiwan-funded enterprises and organizations, and the compatriots of Hong Kong, Macau and Taiwan) shall pay the house property tax in accordance with the Provisional Regulations on House Property Tax of the People's Republic of China.
IX. City Maintenance and Construction Tax
The city maintenance and construction tax is imposed on the entities and individuals who pay value added tax, consumption tax and business tax. The tax is calculated on the basis of the value added tax, consumption tax and business tax actually paid by the taxpayer. There are 3 levels of tax rate applied on the basis of the taxpayer's location, i.e. 7% (urban area), 5% (county towns, towns) and 1% (areas other than the urban area, county towns or towns). The city maintenance and construction tax shall be paid respectively together with value added tax, consumption tax and business tax.
X. Tax on the Use of Arable Land
The tax on the use of arable land is imposed on the entities and individuals who use the arable land to build houses or for other non-agricultural construction purposes, and is collected on the basis of the area of the arable land used. The tax amount standard ranges from RMB 5 to 50/m2. The taxpayer shall pay the tax on the use of arable land within 30 days upon the approval by the land administration department on the use of land.
XI. Land Appreciation Tax
The land appreciation tax is imposed on the increment value of the transfer of State-owned land use rights, above-ground structures and their attached facilities, and is collected at the specified tax rate. There are four level progressive rates, i.e. 30%, 40%, 50% and 60%. The taxpayer shall file the tax returns with the competent tax authority where the real estate locates within 7 days upon the execution of the real estate transfer contract, and pay the land appreciation tax within the time limit designated by the tax authority. Where the land appreciation tax is able to be calculated due to the involvement of cost determination or other reasons, the provisional land appreciation tax may be collected in advance, settled after the completion of the project, and refunded for any overpayment or supplemented for any deficiency.
XII. Vehicle Purchase Tax
The vehicle purchase tax is imposed on the entities and individuals who purchase the taxable vehicles, such as cars, motorcycles, trams, trailers and agricultural transport vehicles. The vehicle purchase tax is calculated under the rate on value method, and the tax rate is 10%. The price for tax assessment is the total amount of the price and other charges in addition to the price paid by the taxpayer to the seller for the purpose of purchasing the taxable vehicle (excluding value added tax); the State Administration of Taxation will provide for the minimum price for tax assessment of the taxable vehicles of various types by reference to the average market transaction price of the taxable vehicles. Where the taxpayers purchase the taxable vehicles, they shall file the tax returns and pay up the tax amount payable in a lump sum within 60 days upon the purchase.
XIII. Vehicle and Vessel tax
The vehicle and vessel tax is imposed on the vehicles and vessels within China, which shall be registered with the regulatory departments in accordance with the law, and shall be paid by the owners or managers of the vehicles and vessels. There are six major tax items, such as passenger vehicles and commercial vehicles. The annual tax amount standards of the tax items vary from RMB 36 - 5400/vehicle, or from RMB 3 - 60/ton in terms of dead weight (net tonnage), or from RMB 600 - 2000/m in terms of the length of yacht body. The vehicle and vessel tax shall be filed and paid on a yearly basis.
XIV. Stamp Tax
The stamp tax is imposed on the entities and individuals executing or accepting the taxable instruments specified in tax laws during the economic activities and exchanges. In terms of the stamp tax, the tax amount payable shall be calculated at different proportionate tax rates in respect of the contract price or on the basis of a fixed amount per instrument, in the light of the nature of the taxable instruments. There are four levels of proportionate tax rates, i.e. 1‰, 0.5‰, 0.3‰and 0.05‰. For instance, in terms of purchase and sale contract, the proportionate tax rate is 0.3‰of the value of the purchase and sale; in terms of processing contract, 0.5‰of processing fee or contracted receipts; in terms of property leasing contract, 1‰of the lease amount; in terms of loan contract, 0.05‰of the loan amount. In terms of the license or permit, a fixed amount of RMB 5 shall be paid for each instrument. The stamp tax shall be paid in a manner that taxpayers shall, in accordance with the provisions, calculate the tax amount payable, purchase and affix at one time the full corresponding amount of tax stamps. In terms of the equity transfer instrument, the stamp tax shall be respectively paid by the parties to such instrument at the rate of 3‰in respect of the amount calculated on the basis of the actual transaction price on the securities market upon the date of execution of such instrument.
XV. Deed Tax
The deed tax is imposed on the land and houses the titles to which are transferred through such means as transfer, assignment, purchase or sale, gift or exchange, and shall be paid by the entities and individuals who are the transferees. Where the land or houses are the subjects of the transfer, assignment, purchase or sale, the tax shall be calculated on the basis of the transaction price; where the land or houses are the subjects of gifts, the tax shall be assessed by the collection authority; where the land or houses are the subjects of exchanges, the tax shall be calculated on the basis of the difference between the exchange prices. The tax rate is from 3% to 5%. The taxpayer shall file the tax returns within 10 days upon the occurrence of the tax payment obligation, and pay the tax within the time limit specified by the deed tax collection authority.
XVI. Tobacco Leaf Tax
The tobacco leaf tax is imposed on an entity that engages in the purchase of tobacco leaves (including aired tobacco leaves and baked tobacco leaves) within China, and shall be calculated on the basis of the sum as generated from tobacco leaf purchases at the tax rate of 20%. The taxpayer shall file the tax returns within 30 days upon the occurrence of the tax payment obligation. The prescribed time limit for paying the tax shall be determined by the competent tax authorities.
It shall be noted that, notwithstanding the 19 categories of tax provided for in the tax laws of China (including customs duty and tonnage dues), not every taxpayer has to pay all of them. only if the taxpayers have the taxable activities specified by the tax laws, they are required to pay relevant taxes, and in case of no such taxable activities, they are not required to pay relevant taxes. According to actual situation, the enterprises with relevant larger scale and wider business scope may be involved with about 10 tax categories, while most of the enterprises only pay 6 - 8 tax categories.
