China - Taxation

An overhaul of China's tax system began in 1979 as part of the Four Modernizations program. The principal domestic levies, as in the past, were commercial and industrial taxes imposed on all enterprises, but, after 1979, taxes were due only on assigned production quotas. In 1993, the Consolidated Industrial and Commercial Tax was levied (usually at 5– 10%) on agricultural and industrial production, commercial retailing, and service, transportation, and communication earnings.

On 1 January 1994, the PRC Individual Income Tax law came into effect in China. The PRC introduced a new turnover tax system consisting of a VAT, business tax, and consumption/excise tax, to replace the CICT. Under the new system the sale or importation of goods and services are subject to VAT at a standard rate of 17%. Other services and the transfer of real property and intangible assets are subject to a business tax with a rate ranging from 3% to 20%. Consumption/excise taxes were also introduced to tax 11 categories of goods, including cigarettes and alcoholic beverages.

Under a tax law that took effect on 1 July 1991, joint and foreign owned ventures pay a combined national and provincial tax levied at 33% of pre-tax income. A foreign-owned enterprise with income from sources in China but not established there pays a 20% withholding income tax, and royalties for certain types of technical knowledge are taxed at 10% of the revenue amount. Individuals are required to submit individual income tax returns to the Tax Bureau on a monthly basis. As of 1 January 1996, tax rates ranged from 5% to 45% for individual income tax.