Applicable Taxes for Foreign Investment Enterprises in China: Tariff and Business Tax

With the continuous development of world trade, customs duties accounted for the proportion ofChina’s fiscal revenue is declining. The tariff is a tax for the trade of goods entering and leaving the country or customs territory of goods levied, which is imposed byChina’s Customs.

Business tax is imposed from turnover of units and individuals, who provide taxable services, transfer intangible assets or sale of real estate inChina.


Taxable objects: the taxpayers of trade goods are the consignee of the imported goods and the consignor of export goods, the former should be subject to import tariffs, the latter shall pay export tariffs.

Tariff rates:

Import tariffs are set general rates and preferential rates. General tariff rates are for originating goods of countries or regions, which have not concluded reciprocal tariff agreements withChina; preferential tariff rates are for originating goods of countries or regions, which have concluded reciprocal tariff agreements withChina; the total level of import tariffs is 9.8 percent in the recent.

Dutiable price:

Dutiable price of ordinary imported goods is CIF price, dutiable price of exports goods is FOB price.

Tax basis: tax basis of tariff is basic on dutiable price and quantity of import and export goods, the calculation of tax payable is according to the provisions of the applicable tax rate or tax standards.

Tax payable = import and export of goods taxable quantity × unit tariff

dutiable price × applicable tax rate

Tax payable = the number of taxable goods of import and export × applicable tax standard

Tariff payable: the taxpayer or his agent shall fill the customs the tax payment certificate, and pay to the designated bank within 15 days from the date of payment certificate.

Business Tax

Classifications of tax item: current business tax items of China is 9: transportation, construction, post and telecommunications, culture and sports, finance and insurance, services, transfer of intangible assets, selling real estate, the entertainment industry.

Tax object

Tax objects are the units and individuals who prescribed taxable services, transfer intangible assets or sale of real estate accordance with “Regulations on Business Tax of the People’s Republic ofChina” in theterritoryofChina. Unit refers state-owned enterprises, collective enterprises, private enterprises, joint-stock enterprises, other enterprises and administrative units, institutions, military units, social organizations and other units.

Tax items and tax rates

Business tax rate is according to different industries and different operations, divided into four levels in accordance with the role degree of these industries in the national economy, keeping the overall tax burden standards and the simple principle:

For the 4 tax items of transport industry, construction, post and telecommunications, culture and sports, the tax rate is 3%;

Tax rate of financial and insurance is 5%;

For the 3 tax items of services, transfer of intangible assets, sales of real estate, the tax rate is 5%;

The tax rate of entertainment industry is 5% ~ 20%, the specific applicable tax rate is accordance with the Provincial People’s Government of China announced prevail.

The formula is: Tax payable = turnover × applicable tax rate

Time and deadline of tax payment:

Business tax liability arising should be the date of taxpayers receiving business proceeds or obtaining a copy of the business proceeds credentials.

Tax deadline of business tax is on the days of 5, 10, 15 or a month. The competent tax authorities should approve the specific tax period.

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Notes for Setting up Foreign Representative Office in China

In China, the approval process of registering trademark office is relatively simple, and no registered capital is required. Therefore, many foreign investors will choose to develop their business in China initially. At the same time, the investors should fully aware that the foreign representative office could only represent an offshore company to carry out the business activities under their business scope, such as business contact, product introduction, market research and technical exchange, etc.

However, if China has signed bilateral treaty with local government of that foreign country, this bilateral treaty explicitly stipulated foreign permanent representative can engage in the direct operation activity in China, so they should refer to these stipulations. Although the law doesn’t allow the office to be engaged in direct operation, it doesn’t mean that the office can’t be engaged in any economic activity. And the name of the representative office should follow the format ” country/region name + company name+ (the proposed district) office.


Firstly, the company should meet the following requirement before they can set up foreign representative office.

a. The foreign enterprise must have registered legally in its local country.

b. The foreign enterprise should be founded at least two years or more in the country where it is located.

c. The foreign enterprise should have good business reputation.

d. The enterprise should have fixed place of business.

e. The enterprise should appoint one chief representative.

f. According to the business requirement, the foreign enterprise can appoint one to three representatives.


Secondly, the documents and time are required for setting up representative office.

a. Foreign enterprise should provide the proof of residence and legal business for more than two consecutive years.

b. Foreign corporate charter or organization agreement.

c. The appointment file of chief representative.

d. The identity and resume of chief representative or representatives.

e. Certificate of its credit worthiness issued by financial institution which they have business transaction.

f. The proof of legitimate use of representative office location.


The above documents and files should be written or printed in Chinese. Once in foreign language version, the Chinese translation version attachment will be required by each approval authorities. Without the indication to submit copy, all the documents should be in original copies. According to the requirement to submit copies, they should be stamped with official seal by applicants and indicated the same with original ones.

In addition, the foreign representative office should submit annual reports to registration authority between March 1 to June 30, including validly existing of foreign enterprises, business activities of representative office as well as its balance of payments audited by accounting firms.


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Forms of China Company Incorporation for Foreign Investment

Throughout the development of the global economy, China’s economic development is particularly striking and its huge market potential also continues to attract global investors. China also plays as a significant role in world economy. Due to political, cultural background and other factors, China is a country full of opportunities and challenges in the views of most investors.

With continuously deepening of opening up, China provides several forms of Company Incorporation for Foreign Investment in China.

Foreign Representative Office Incorporation

The examination and approval procedure for a foreign representative office in China is simple, without requiring registered capital. For foreign investors newly entering the China market, setting up a foreign representative office is relatively a good bridge. But a representative office cannot carry out operating activities directly; in fact, it can only carry out business liaisons, product introduction, market research and technical exchange on behalf of an offshore company within the scope of their operations. A representative office does not qualify as a legal entity, so its civil liability shall be undertaken by the offshore company it represents.

Wholly Foreign-owned Enterprise Incorporation

In China, Wholly Foreign-owned Enterprise is a corporate enterprise, with entire capital contributed by the foreign investor, as well as an independent economic entity, bearing legal liability independently. Foreign investors contribute by installment towards the registered capital, where the first installment shall be paid in an amount not less than 15% of the statutory capital within 90 days from the date of issue of the business license, and the last installment shall be paid up within 2 years.

Taxes Involved in the Operation of Wholly Foreign-owned Enterprise includes Corporate Income Tax, Tariff, Value-added Tax on Importation , Value-added Tax, Consumption Tax, Individual Income Tax and Staff Social Security. Meanwhile, China will grant preferential policies for some enterprises according to different situation.

Foreign Investment Enterprise Incorporation

Flexible modes of business operations are allowed under the Measures on the Administration of Foreign Investment in Commercial Fields, foreign investors can set up joint venture, cooperative or wholly owned enterprises; or they can franchise others to open stores. Moreover, they can be engaged in one or more selling operations simultaneously, and more importantly, they are entitled to import-export power automatically conditional on the approval. Taxes include value-added tax, income tax and staff social security.

They are entitled to import-export power automatically on the approval. Currently, the implementation of the Measures have already canceled geographical restriction enlarged their business scopes and reduced the registration capital, which is favored by overseas investors.

Transformation of “Processing & Assembly” Companies Incorporation

“Processing & Assembly” refers to the processing materials supplied by customer, processing according to customer’s samples, assembling parts supplied by customer and compensation trade. “Processing & Assembly” is signed as a cooperative contract between a Chinese business entity and a foreign enterprise, and is registered in the name of the Chinese partner. Generally the “Processing & Assembly” company is not allowed to market the products within China, and all products manufactured shall be exported; The “Processing & Assembly” corporation is generally operated and managed by the foreign enterprise directly, while the Chinese partner shall only provide assistance; and both parties will finally collect the processing fee as agreed.

Sino-foreign Equity Joint Venture Incorporation

Sino-foreign Equity Joint Venture is also called equity joint venture. It is a corporation jointly invested and incorporated by foreign companies, other economic organizations or persons and Chinese companies or other economic organizations, which is featured by joint contribution, joint operation of all parties to the joint venture, and sharing of risk, profits and losses in proportion to their respective contributions towards the registered capital. The Law on Enterprises with Foreign Investment requires the foreign investor to contribute not less than 25% of the registered capital of the joint venture, but without a top limit.

Sino-foreign Equity Joint Venture is the best platform for foreign investor to share the resource with the Chinese enterprise, relying on its network and established well-known brand to enter the Chinese market successfully. Foreign investors can make use of the geographical advantage of Chinese enterprises, reasonable and legitimate to reduce the financial expenditure, and enjoy the foreign investment incentives to reducing operating costs.

Sino-foreign Co-operative Joint Venture Incorporation

Sino-foreign Co-operative Joint Venture is a general applicable mode of economic co-operation of investors for the exploitation of natural resources, which is distinctively subject to high risk, high input and high return. Sino-foreign Co-operative Joint Venture allocates its profits not on the basis of investment amount or shareholding, but according to the rights and obligations determined by contract between all parties. The investment or co-operative terms provided by the Chinese and foreign partner shall be in cash, in kind, in land use right, industrial property right, nonproprietary technology and other property rights.

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Guideline of China Wholly Foreign-owned Enterprise(WFOE) Incorporation

With in-depth understanding of Chinese market of foreign investors, many of them tend to set up wholly foreign-owned enterprise to do business. Setting up wholly foreign-owned enterprises will not only enable the investors to increase marketing decision and response speeds, but also provide the greatest security for the investors to protect their scientific research confidentiality and keep centralized management intact. Meanwhile, foreign investors contribute by installment towards the registered capital, where the first installment shall be paid in an amount at not less than 15% of the statutory capital within 90 days from the date of issue of the business license, and the last installment shall be paid up within 2 years.

Required Documents for Incorporation mainly includes:

  1. The feasibility study report
  2. Articles of association
  3. Enterprise Name Approval in Advance Notice
  4. The application for foreign investment company incorporation signed by the proposed legal representative
  5. Meetings Record
  6. The investor’s entity qualification certificate or the natural person’s ID card
  7. The appointment letters and ID cards of directors, supervisors and managers
  8. The legal representative’s appointment letter and ID card
  9. Certificate of assessment of capital
  10. Lease contract or certificate of property rights
  11. Documents or certificates for earlier setup examination and approval

Taxes Involved in the Operation of Wholly Foreign-owned Enterprise in China:

1. Corporate Income Tax: generally the tax rate is 25%; the high tech enterprises with key aided enjoy 15% preferential income tax; those enterprises qualified for small profit enterprises enjoy 20% preferential income tax.

2. Tariff, and Value-added Tax on Importation: foreign investors carrying out investment in related file or projects, shall be entitled to first taxation, and then refund, of tariff and value-added tax or enjoy the tax exempt.

3. Value-added Tax, and Consumption Tax:  The foreign investment productive enterprise being a general taxpayer shall be entitled to “Exemption, Credit and Tax Rebate” of taxation or “Collection First and Refund Later” on the self-managed export, or export on consignment, of its self-produced goods. Meanwhile, during the process of export sales, they can enjoy the tax exempt of value-added tax.

The foreign capital investment enterprise shall be exempt from tariff and value-added tax on importation and consumption tax payable on the goods imported by the trade method of processing materials supplied by customers, and processing imported materials, and exempt from the value-added tax on production and consumption tax on the exported goods produced by it. While, to those foreign capital investment enterprise categorized as “encouraged” shall be entitled to full refund of the value-added tax payable on the home equipment, falling within the scope of the Exemption Catalogue, and purchased within its aggregate investment.

4. Individual Income Tax: Foreign nationals are entitled to a monthly exemption of RMB4800, with the remainder subject to individual income tax at 3-45%. Foreign nationals are exempt from individual income tax payable on the interests from saving deposits with financial institutions

5. Staff Social Security: The enterprise will make a certain social security contribution for its employee at a percentage of the employee’s monthly salary, of which the base and proportion are calculated differently due to different living standards in different regions.

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Something You Need to Know about China Trademark Registration

The behaviors of copycat are widely existed in current market, such as “the free-riding against the well-known brand names” and “the imitation of famous brand-name”. The existing of copycat not only disrupted the market order, but also brought the economic and reputation cost for many consumers and enterprises due to its quality issues. Especially in manufacturing countries like China, an enterprise can be widely accepted by majority relying on the important role of trademark. Enterprises registered trademark needs to be approved by the China Trademark Office, the applicant can obtain the exclusive rights of the trademark.

In accordance with the provisions of “China Trademark Law”, non – Chinese people can register trademarks in China can gain their trademark rights in accordance with the law protected by Chinese law. In recent years, due to China’s rapid economic development and the magnetic properties of the Chinese market, the number of registered trademarks in China by foreigners is also on the rise. According to statistical data of Trademark Office of the State Administration for Industry and Commerce, the trademark applications were more than 154,000 registered by foreigners by the end of 2010, the registration amount was far more than the Chinese enterprises in overseas trademark application. Only in the year of 2010, foreigners have submitted 98727 trademark applications in China. Obviously, applying for trademark protection for their own brands in China has been attached more and more the attention from the global enterprises.

Those enterprises wish to register trademarks in China, they need to understand and be familiar with the rules and precautions of Chinese trademarks, to avoid the lack of specificity in the registration process as well as the cost waste for individual or enterprises due to the blind registration.

Rules you need to know for China Trademark Application:

  1. Where two or more applicants apply for registration of identical or similar Trademark for the same or similar merchandises, the trademark will be given to which preliminary approval, after examination, is obtained and to which the announcement of the application therefore is made first. Where applications are filed on the same day, the trademark will be given to which preliminary approval, after examination, and to which the announcement of the use thereof is made first. The dismissal of the applications of the Trademark by others will not be announced.
  2. Any person may, within 3 months from the date of the announcement, file an opposition against the trademark that has, after examination, been preliminarily approved. If no opposition has been filed after the expiration of the announcement period, the registration will be approved and the trademark will be issued a certificate of trademark registration and announced. Where an application for trademark registration is dismissed and trademark will not be announced, the Trademark Office will notify the trademark registration applicant in writing.
  3. If the trademark registration applicant refuses to accept the dismissal, he may apply to the Trademark Review and Adjudication Board for review within 15 days from the day on which the notification is received, and the Trademark Review and Adjudication Board will decide and notify the applicant in writing.

Moreover, you can enjoy the right of Priority of China Trademark Registration meet following requirement:

  1. Where an applicant applies for registration in China of the same trademark for the same merchandises within 6 months from the day on which it first filed an application for registration of the same in a foreign country, he may enjoy the right of priority in accordance with any agreement entered into between that foreign country and China or any international treaty to which both countries are parties, or according to the principle of mutual acknowledgement of the right of priority.
  2. Where a trademark is used for the first time on the merchandises displayed at any international exhibition sponsored or acknowledged by the Chinese Government, the applicant applying for registration of that trademark may enjoy the right of priority within 6 months from the day on which the said merchandises are displayed.
  3. Any applicant requesting for the right of priority shall file a written declaration when submitting its application for trademark registration, and shall provide copies of the application documents submitted when it first filed the registration application for the trademark or the name of the exhibition at which its merchandises are displayed, the evidence proving that the said trademark is used on the displayed merchandises and supporting documents for the date of exhibition within 3 months; the applicants who fail to file written declarations or provide copies of the application documents for trademark registration within the prescribed time limit shall be regarded as not having request for the right of priority.
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