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[ESTABLISHING A BUSINESS ENTITY IN CHINA]
within its jurisdiction. The procedures required apply equally to foreign and domestic purchasers, which involves a relatively open and transparent public bidding process. Depending on the purpose of use of the land, the applicable term of use varies, such as fifty years for land zoned for industrial use and forty years for land zoned for commercial use. 6) Tax China has a comprehensive taxation system, which is modelled after or similar to some major western countries. Taxes related to a business entity are complicated. For FIEs, the taxes most closely relevant to their business in China are value-added tax (“ VAT ”), income tax and withholding tax. a) Value-added Tax In general, VAT is imposed widely on revenue generated from the sale of goods or intangible assets, as well as provision of processing, repair, maintenance, transportation, profession, and other services. Therefore, most FIEs will be collected the VAT during their daily business operation.
b) Income Tax -
Corporate Tax China currently enforces a unified income tax treatment for all companies in China, with a tax rate of 25%. A “resident enterprise” 18 is subject to tax on its worldwide income. It should be noted that the law provides tax incentives to those resident enterprises that invest in high and new technology and certain other encouraged industries. It is recommended that FIEs assess their eligibility for available preferential tax treatments.
- Individual income Tax
Individual income tax applies to foreign nationals that are residing in China or have income deriving from China, depending on their working and residence status in China. Partnership In principle, partnerships in China are tax pass-through entities and do not need to pay income tax at the partnership level. The partners are subject to income taxes on their distributive share of the business profits earned from the partnership.
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The VAT rate may vary depending on the underlying business activity. For example, it is 13% for trading of goods, 6% for services, 9% for transfer of land, etc. If an FIE pays the VAT to third parties, it may be able to enjoy relevant deduction for such VAT.
18 A resident enterprise refers to an enterprise legally established in China, or an enterprise established according to the laws of a foreign jurisdiction but has an actual operating institution in China. Therefore, an FIE falls under the scope of a resident enterprise.
ILN Corporate Group – Establishing a Business Entity Series
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