November 26, 2012

Applicable Taxes for Foreign Investment Enterprises in China: VAT

Applicable Taxes for Foreign Investment Enterprises in China: VAT
People from abroad to invest in China and set up a Chinese company, could get a profit through the production and operation, and they should pay the corresponding taxes in accordance with Chinese law.

VAT has become China’s largest tax in recent years, their income accounted for more than 60 percent of all taxes. Tax basis model of China’s VAT is basic rate (17%) plus a file of low tax rates (13%).

The scope of taxation: VAT is imposed on commodity production and circulation in all sectors of the added value or merchandise value-added levy, which covers:
Goods: refers to the tangible personal property, including electricity, heat, gas, not including real estate;
Processing: refers to the contracted processing of goods, that is commissioned to provide raw materials and main stuffs, the trustees manufactured goods in accordance with the requirements of the commissioning party and charge a processing fee business;
Repairs and replacement: refers to the trustee repairs the damage and loss of function of the goods, to restore the original state and function of business.

Basic Formula: Tax payable = output tax - input tax
Excluding tax sales = tax sales ÷ (1 + rate)
Sales tax payable = excluding tax sales × tax rate

Tax categories: according to the scale of operation and accounting soundness, the VAT taxpayers are divided into general taxpayers and small-scale taxpayers in China, and perform a variety of tax basis.

1. Small-scale taxpayers refer to the companies which annual taxable sales under the prescribed standards and unsound accounting VAT taxpayers.
??Small-scale taxpayers sell goods or taxable services and use a simple way to calculate the tax payable. In terms of sales (excluding tax payable) and provisions of the 3% levy rate calculation of tax payable (does not distinguish between industrial and commercial), shall not be deductible input tax and shall not issue VAT invoices.
The formula is: Tax payable = Sales amount × levy rate (3%)

2. The general taxpayer refers to annual taxable sales in excess of the enterprises of small-scale taxpayers standards.
For personal, non-enterprise units, the enterprise with few taxable activities, even if the annual taxable sales exceed the standard of small-scale taxpayers, also be deemed as a tax in the taxpayer of small-scale.
The formula is: Tax payable = Output tax - Input tax
Output tax = sales × applicable tax rate

3. The tax payable of imported goods is according with the composite assessable price and the provisions of tax rates, should not deductible input tax.
The composition of the VAT taxable price includes satisfied customs duty; if the imported goods are consumption taxable goods, the VAT taxable price should also include the satisfied consumption tax.
The formula is: Tax payable = Composite assessable price × applicable tax rate
Composite assessable price = Customs dutiable value + Tariff

Tax Rates:
The VAT rate for selling or importing goods of taxpayers is 17%.
Taxpayers selling or importing the following goods, the VAT rate is 13%:
1) Grain, edible vegetable oils;
2) Tap water, heating, air conditioning, hot water, gas, liquefied petroleum gas, natural gas, biogas, usable coal products of residents;
3) Books, newspapers and magazines;
4) Feeds, fertilizer, pesticides, agricultural machinery, plastic sheeting;
5) Other goods prescribed by the State Council.
For taxpayers exporting goods, the tax rate is zero; (zero-rated exports of goods, goods in the export sector is not taxed; taxes already paid for the previous tax aspects of different types of goods, you can enjoy some or all of the refund).
Taxpayer providing processing, repairs and replacement services, the rate is 17%.

Time of tax duty and tax deadline:
The tax liability arises on the sale of taxable consumer goods, should be received the sales payment or made to obtain a copy of the sales money credentials. Time for tax payment of imported goods is the date of import declaration.
Tax deadline of VAT is on the days of 1, 3, 5, 10, 15 or a month, but the competent tax authorities should approve the specific tax period according to the size of the tax payable respectively.

If you need more information on China Tax and China Company Formation: WFOE, FIE,CEPA,Foreign Representative Office, you can refer to CONPAK CPA Limited http://www.conpak.com.
Tags:company formation,trademark registration

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