What Taxes is a Chinese Factory Paying?

Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes.” It is true that no enterprise in the world can avoid paying taxes, which poses the question: What taxes do Chinese factories currently pay? The following post will outline the various types of taxes that Chinese factories encounter, which can help one understand the costs that Chinese factories incur on a consistent basis.

Today, China has eighteen different types of taxes, all of which are divided into State, Local, and Customs Duty taxes. They include:

  • Value Added Tax
  • Consumer Tax
  • Business Tax
  • Enterprise Income Tax
  • Personal Income Tax
  • Resources Tax
  • Urban Land Using Tax
  • House Tax
  • City Maintenance and Construction Tax
  • Farming Land Occupation Tax
  • Land Value Increment Tax
  • Vehicle Purchase Tax
  • Vehicle and Vessel Tax
  • Stamping Tax
  • Contract Tax
  • Tobacco Tax
  • Customs Duty
  • Tonnage Tax

There are various State and Local taxes that are imposed on a factory in China. Typically,State taxes are collected by a subsidiary branch of the State Taxation Bureau and ultimately flow upward to the National Treasury. On the other hand, Local taxes are imposed by the respective Local Taxation Bureau. The collected taxes are then utilized by the local government for municipal needs to better serve the local community.

Additionally, both State and Local taxes are comprised of various auxiliary taxes. For instance, State taxes include:

Value Added Tax (VAT)
Many countries apply this tax to their respective enterprises, which add more value to raw materials and manufactured goods. The basic VAT rate in China is 17%. In China this tax is controlled through a special VAT invoicing system. The factory must send an invoice for its customers. This customer, if it is also a VAT invoice issuer, can use this invoice for VAT tax deduction so it need only pay the extra amount of the VAT tax. China has an export VAT refund policy. For imports, the VAT is collected by China Customs, an independent department authorized by the China Central Government.
To get a comprehensive explanation of China’s VAT, read our Value Added Tax (VAT) White Paper.

China Value Added Tax VAT Invoice Example

A typical Chinese Value Added Tax Invoice

Consumer Tax
This tax is specially imposed to a few consumer goods, such as cigarettes, alcohol, vehicles, etc. The rate varies in different products, ranging anywhere from 1% to 56%.

Enterprise Income Tax
All factories earning sales income need pay Enterprise Income Tax. The normal Enterprise Income tax rate is 25%. But in China there are many reduction and exemption policies which can reduce the burdens of some companies such as those related to hi-tech, education, encouraged projects, developing area, agriculture and etc.

Local taxes can also be comprised of various supporting taxes, such as:

Business Tax
Business Tax is usually imposed on taxable services. The tax rate is normally set at 3% or 5%, depending on the specific services obtained. An exception to the rule is an Entertainment Business Tax, which is typically 20%.

City Maintenance and Construction Tax
This tax is imposed on the factories paying VAT and Business Tax with different rates for various areas. This tax typically ranges anywhere from 1% to 7%.

Stamping Tax
This tax is for various vouchers in economic activities. The rate ranges from 0.05% to 3%.

Personal Income Tax
This tax is deducted directly from the factory when it pays salaries to its employees.

Custom Duties Tax
The Custom Duties Taxes consists of the Tariff and Tonnage Taxes, which are collected by China Customs, along with the import tariff. Some factories need to pay export tariffs for the items that the government discourages for export.

Other Taxes
Factories must adhere to all tax requirements when applicable. For instance, pay Vehicle Purchase Tax, as well as Vehicle and Vessel Tax when it purchases a car.

The different taxes imposed on a factory in China can affect the final purchase price of your respective orders. Based on the information above, one should always be mindful and educated on the various tax requirements that are imposed on factories when evaluating and the cost of buying from China. Having a better understanding of the Chinese taxation system can ultimately help you save money by choosing factories that are subject to better taxation options.

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