Tax in China: Corporate, Personal, VAT, WHT — What Really Applies to You
- Roman Verzin
- May 18
- 3 min read
Updated: Aug 8
If you plan to run a real business in China — you need to understand how taxes work.
China has a full, structured tax system. And sooner or later, it will affect your operations.
Let’s break it down — by tax types.
1. VAT — Value-Added Tax
This is the most important tax if you’re selling or buying goods in China.
Standard VAT rate is 13%
Some industries qualify for 9% (e.g. transport) or 6% (e.g. services)
VAT is added to your price — and paid monthly
You charge VAT on domestic sales.
If you export, you may qualify for VAT refunds — we’ll cover this in Part 9.
Now let’s address a common myth.
Some Chinese companies use a simplified tax regime — 小规模纳税人 — with flat VAT rates of 1–3% and easier reporting.
But if you’re a foreign founder planning cross-border business, this probably won’t apply to you.
Simplified tax is for micro-enterprises — with low volume, no FDI, and domestic activity.
2. Corporate Income Tax — CIT
This is a tax on profits.
Standard rate: 25%
Some small Chinese companies qualify for reduced rates — 20%, 15%, even 10% — but only under strict conditions:
Domestic ownership
Low annual revenue
Small staff
Foreign-owned companies usually pay 25%, unless part of a government-supported industry.
We’ll cover tax incentives in Part 14.
To manage your CIT, you’ll need:
Clean bookkeeping
Real, verifiable expenses
Accurate financial reports
In China, many common expenses in other countries may be partially — or fully — non-deductible:
Travel and meals have limits
Gifts and entertainment have limits
Anything without official invoices (fapiao) is excluded
So make sure your accountant understands what is — and isn’t — deductible in China.
3. Individual Income Tax — IIT
If you hire employees in China, you pay income tax on their salaries. It’s a progressive system — from 3% to 45%, depending on the salary.
Your company is responsible for:
Withholding tax from monthly salaries
Paying it to the tax bureau
Filing payroll reports each month
This applies to both Chinese and foreign employees.
4. Social Insurance
Mandatory for Chinese staff.
For foreigners, rules vary by city.
There are five categories:
Pension
Medical
Unemployment
Maternity
Work injury
Total cost is around 30–35% of gross salary — shared between employer and employee.
5. Withholding Tax — WHT
If your Chinese company pays for services, interest, or royalties abroad —
you may need to withhold tax before making the transfer.
Standard WHT rate: 10%
Actual rate depends on double tax treaty with recipient’s country
Always consult a tax advisor before making outbound payments.
6. Other taxes
China has a few additional charges linked to VAT — especially for domestic sales.
These include:
Urban maintenance tax
Education surcharge
Local additional taxes
They typically add 10–12% on top of VAT.
Exporters usually don’t pay them — because refunded VAT is exempt.
But if your company sells inside China, make sure to include these costs in your pricing.
So what’s the big picture?
China has a real tax system
Your expenses must be strictly business-related
And they will be checked
From day one:
Set up proper bookkeeping
Don’t mix business and personal funds
Choose an accountant who knows how to work with foreign founders
And this last point is key.
We’ve seen it again and again —
Chinese accountants rarely explain risks in advance.
They just go step by step — and then surprise you with tax issues later.
So take it seriously.
At United Suppliers Group, we help founders from complex countries manage real operations in China — not just open companies on paper.
That includes structuring your taxes, setting up accounting, and staying compliant with Chinese rules.
In the next article, we’ll explain how VAT refunds work — and why many founders fail to get them even when eligible.
Need help understanding your tax position in China? Contact us — we’re here to make it clear.
