Chinese tax laws and regulations have been undergoing on-going changes in the last two decades. As the laws and regulations become more mature and contain less loopholes and conflicts, business entities in China are facing with a strict taxation regime requiring them to carefully manage their tax compliance obligations. These obligations can represent not only a substantial outflow of funds from a business, but also certain tax risks because of increased reporting requirements, a more proactive and investigative approach by the tax authorities and harsher penalties for compliance failure.

Major taxes in China

• Enterprise income tax, applicable to all foreign investment enterprises (FIEs) and local Chinese companies, and to non-resident foreign companies where a payment of interest, rental, royalty and other income is made
• Individual income tax, applicable to all expatriates working in China and local Chinese employees (different tariffs)
• Business tax, applicable to businesses which have relevant transactions such as services
• Value-added tax, applicable to businesses which have sales transactions
• Consumption tax
• Stamp tax
• Urban real estate tax
• Customs duties

Representative offices

Different tax reporting methods are being used to representative offices of foreign companies in China, depending on the relationship between the office and its parent company and its business scope and activities. With exception of tax exemption, offices with other tax reporting methods are required to file business tax and income tax quarterly. For example, when the cost (expenses)-plus method is applicable, the office shall file business tax return based on the deemed revenue at tax rate of 5% and income tax return based on the deemed income at tax rate of 33%. All personal income of employees of the office are subject to individual income tax, regardless of the office's tax reporting method.