Starting Business with China: Taxation and VAT

When starting business with China, understanding the tax system is crucial. For large companies, the main taxation system (General Taxation) is available, which provides access to a wide range of tax mechanisms. Small businesses, on the other hand, can benefit from a simplified system that offers tax breaks but places limits on revenue. This article explores the features of China's tax system, including corporate income tax, rates for different types of companies, and tax incentives for innovative and environmentally sustainable businesses.

---

Business setup in China: Taxation Systems

In China, companies can be under the General Taxation system or a simplified system (for small businesses with low turnover).

Companies under General Taxation

• Pay VAT in accordance with the law and can offset input VAT (VAT paid when purchasing raw materials, goods, services, etc., which can be claimed as a deduction).

• Can issue regular and special invoices (发票) for any type of business activity.

• There are no revenue limits on sales.

Small Businesses

• Taxed as small taxpayers and generally can offset input VAT based on specific proportions.

• Typically, they can only issue regular invoices, with certain limitations on their use.

• Have limits on revenue from sales, and if these limits are exceeded, they may be transferred to the General Taxation system. The exact limit may depend on the region,

  industry, and tax regulations, but it is generally no more than 5 million yuan per year.

---

VAT (Value Added Tax)

VAT is a consumption tax applied to the sale and import of goods and services, as well as the processing, repair, and replacement of goods, rental of non-production assets, and movable property.

Product / Service / Business Type	VAT Rate
Small taxpayers: companies without accounting or auditing systems and revenue under 5 million yuan	3%
Telecommunications services with added value	6%
Financial and insurance services	6%
Travel and entertainment services	6%
Household services (healthcare, education, food and drinks)	6%
"Modern" services (R&D, IT, and technical services)	6%
Sale of intangible assets (except land usage rights)	6%
Real estate rental services	9%
Real estate transfers	9%
Transport, shipping, and freight services	9%
Books, newspapers, magazines, audiovisual products, and e-publications	9%
Postal services	9%
Basic telecommunications services	9%
Transfer of land usage rights	9%
Construction services	9%
Goods supply and imports, trading	13%
Processing, repair, or replacement services	13%
Rental of movable and immovable property	13%

China's taxation system offers flexibility for different types of businesses, including both large and small companies. Companies under the General Taxation system can take full advantage of benefits like VAT offset and no revenue limits, while small businesses receive tax benefits but are restricted by revenue limits. Corporate income tax rates vary depending on the type of company, with special incentives for innovative and environmentally sustainable businesses, which supports Chinese market entry strategy and encourages development across industries.

---

In conclusion, understanding VAT and corporate taxation is essential when starting business with China. By knowing the differences between the tax systems for large and small enterprises, businesses can better navigate the Chinese market and take advantage of available tax incentives, and optimize their business setup in China.

Home