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Business Taxation in Shanghai
 
 
 

General

The standard corporate income tax rate in China is 25%. A special tax rate of 20% applies to small-scale enterprises, also a special 15% tax rate applies to state-encouraged new high-technology enterprises.

Federal Taxes & Levies

Enterprise Income Tax

The passage of the Unified Corporate Income Tax Law ('the New Law') on 16 March 2007 unified the income tax rate for domestic enterprises and foreign invested enterprises (FIEs) and streamlined tax incentives effective from 1 January 2008. All FIEs (i.e. sino-foreign joint ventures and wholly owned foreign enterprises) and foreign enterprises (FEs) with or without establishments in China are now taxed at the same as domestic enterprises. Enterprise Income Tax (EIT) is charged at the rate 25% on taxable profits in a calendar year.

Subject to a preferential tax rate of 20% for qualified enterprises with small profits, both domestic companies and foreign invested enterprises will be assessed at a unified tax rate of 25%. All FIEs (and those foreign enterprises having their head offices in China) are subject to EIT on their worldwide profits. Foreign enterprises which have their permanent establishments (PEs) in China are subject to EIT on profits derived from the permanent establishments. Foreign enterprises without any permanent establishment in China are subject to EIT on China-source income only.

The New Law introduces a wider concept of management in determining tax residency. A company will be recognised as a China tax resident if it is incorporated in China or its place of effective control and management is in China. The tax year in China is the calendar year (i.e. year ended 31 December).

Branch Profits Tax

There is no separate branch income tax.

Capital Gains Tax

There is no separate tax levied on capital gains. Capital gains are subject to EIT as ordinary income. In addition to EIT, any gain realised on the transfer of immovable properties or land use rights is subject to land value appreciation tax.

Land Value Appreciation Tax

Land Value Appreciation Tax (LVAT) applies to domestic enterprises, FIEs, FEs and individuals realising gains from the transfer of land use rights, buildings and premises and attached structure.

LVAT is charged at progressive rates ranging from 30% to 60% on the 'land value appreciated amount' from sales or transfer of land use rights, buildings or other structures. Under the Chinese constitution, land is publicly owned and cannot be transferred. However, it is possible to transfer the right to use land. Gifts and inheritances are exempted from LVAT.


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