When establishing a company in China, it is essential to understand the relationship between
the tax system and corporate compliance. The overall tax burden on enterprises in China is
not determined by a single tax, but rather by a system comprising Corporate Income Tax (CIT),
Value-Added Tax (VAT), customs duties, consumption tax, and social security contributions.
The effective tax burden varies significantly across industries.
Foreign-invested enterprises (FIEs) are generally subject to the same tax treatment as 3 / 6
domestic enterprises. According to the Enterprise Income Tax Law, the tax regimes for
domestic and foreign-invested enterprises have been fully unified. FIEs enjoy national
treatment and are subject to the same statutory tax rates and tax incentive framework.
The following overview is based on current laws and policies and is intended for reference in
decision-making.
I. Basic Tax Framework
China’s enterprise tax system is primarily composed of Corporate Income Tax and Value
Added Tax, supplemented by customs duties (for import/export enterprises) and
consumption tax (for enterprises producing or selling specific consumer goods).
II. Corporate Income Tax (CIT)
The standard statutory rate is 25%, with various preferential rates available for qualified
enterprises.
1. Small and Low-Profit Enterprises
Effective preferential rate: 5%
To qualify, enterprises must meet all of the following conditions:
• Engage in industries not restricted or prohibited by the state;
• Annual taxable income does not exceed RMB 3 million;
• Number of employees does not exceed 300;
• Total assets do not exceed RMB 50 million.
2. Other Preferential Regimes
(1) High and New Technology Enterprises (HNTEs): 15%
Qualification criteria include:
• Ownership of core technologies with independent intellectual property rights;
• R&D personnel account for no less than 10% of total employees;
• R&D expenditure meets prescribed thresholds;
• At least 60% of total R&D expenditure is incurred within China.
(2) Encouraged Industries in the Qianhai Shenzhen-Hong Kong Modern Service Industry
Cooperation Zone: 15%
The preferential rate applies to enterprises engaged in industries listed in the Catalogue of
Corporate Income Tax Incentives for the Qianhai Cooperation Zone (2021 Version). Eligible
enterprises may claim the incentive through self-assessment without prior approval. The
policy covers the following five major industry categories:
• Modern logistics industry
• Information services industry
• Technology services industry
• Cultural and creative industry
• Business services industry
III. Value-Added Tax (VAT)
(1) Preferential Policies for Small-Scale Taxpayers
Applicable until 31 December 2027:
• Monthly sales of RMB 100,000 or less (or quarterly sales of RMB 300,000 or less) are exempt 4 / 6
from VAT;
• Taxable sales subject to a 3% levy rate are reduced to an effective rate of 1%.
Qualification threshold: Annual VAT taxable sales do not exceed RMB 5 million.
(2) VAT Rates for General Taxpayers
• 13%: Sale or import of goods (unless otherwise specified), processing and repair services,
leasing of tangible movable property
• 9%: Agricultural products, edible vegetable oil, water, heating, books and newspapers, feed
and fertilizers, transportation, postal services, basic telecommunications, construction services,
real estate leasing, transfer of land use rights, etc.
• 6%: Value-added telecommunications services, financial services, lifestyle services, modern
services (R&D, IT, cultural and creative services, etc.), transfer of intangible assets (excluding
land use rights)
• 0%: Export of goods, cross-border services, and intangible asset transactions
IV. Special Considerations for Foreign-Invested Enterprises
1. Withholding Tax on Profit Repatriation
Dividends distributed by an FIE to its overseas shareholders are subject to withholding income
tax at a statutory rate of 10%. If a tax treaty between China and the shareholder’s jurisdiction
provides for a lower rate, such treaty rate may apply.
2. Tax Credit for Reinvestment
Where overseas investors reinvest profits distributed by a Chinese resident enterprise into
direct investments in China between 1 January 2025 and 31 December 2028, a tax credit of
10% of the reinvested amount may be applied against the investor’s current-year tax payable.
Any excess may be carried forward to subsequent years.
3. Transfer Pricing Compliance
Transactions between an FIE and its overseas related parties must comply with the arm’s
length principle. Tax authorities may make transfer pricing adjustments where this principle is
not observed. FIEs should prepare contemporaneous transfer pricing documentation to
mitigate compliance risks.
Contact Information:
Welcome foreign enterprises and investors interested in investing in China, establishing a
company in China, or setting up factories, technology enterprises, engaging in trade or cross
border e-commerce with Chinese companies. Please feel free to contact us.
Yanmei CHE (Michelle) P.R.C Lawyer
Partner of Beijing Dacheng Law Offices, LLP (Shenzhen)
Mobile: what’s app: +852 9511 7818 +86 185 6626 7282 (wechat)
Email：yanmeiche@126.com
Address: 12F, 20F, 21F, 26F, Block A, Shenzhen International Innovation Center,No.1006，
Shennan Boulevard, Futian District, Shenzhen, China.
