China’s tax system is structured and tightly regulated, with a 25% corporate tax rate and progressive individual income tax reaching up to 45%. While there are no wealth, gift, or inheritance taxes, strict exchange controls and anti-avoidance measures ensure compliance. The country enforces global tax regulations through CFC rules and has a strong network of Double Tax Treaties (DTTs). With a mix of international integration and domestic oversight, China’s tax system is built for control and economic stability.
China’s Tax System overview
| Corporate Income Tax: | 25% Flat |
| Comprehensive Income Tax: | 45%, progr. |
| Business Income: | 35%, progr. |
| Dividends, Interest: | 20% Flat |
| Gift Tax: | None |
| Wealth Tax: | None |
| Inheritance Tax: | None |
Legal System
China is a socialist republic run by the Chinese Communist Party (CCP). The legal system is based on civil law, influenced by European continental law.
Currency and Exchange Controls
The currency is the Chinese Yuan (CNY). China maintains strict exchange controls, and regulates the flow of foreign exchange.
Corporate Income Tax
Resident corporations, and foreign corporations with an effective place of management in China, are subject to tax on worldwide income. Corporate income tax (EIT) is 25%.
Personal Income Tax
Resident individuals are subject to tax on their worldwide income. Individual income tax is (IIT) is levied on individuals that are resident in China 183 days more in a calendar year. Categories include Comprehensive Income, up to 45% tax, Business Income, up to 35% tax, and Dividends and Interest, and other items, taxed at 20%.
Anti-Avoidance Rules
China has Thin Capitalization rules, Transfer Pricing rules, Controlled Foreign Corporation (CFC) rules, and general Anti-Avoidance rules. Transactions that avoid taxable income must have a bona business purpose. The SAT may re-characterize transactions and may go back for up to 10 years. The GAAR rules apply to corporations and individuals.
Controlled Foreign Corporations (CFCs)
CFCs are foreign corporations that have a tax rate of less than 12.5% and are “controlled” by Chinese residents. Control means ownership of more than 10% of the voting shares of the CFC or substantial control over capital, management, etc. Residents with controlling interests in CFCs are taxable on their share of the undistributed profits of the CFC. CFC rules apply to corporations and individuals.
Trusts
China adopted a domestic trust law in 2001, but has not ratified the Hague Convention on the Recognition of foreign trusts. The Chinese tax code does not address the tax treatment of foreign trusts settled by Chinese residents.
Double Tax Treaties (DTTs)
China’s DTTs which include those with Cyprus, Hong Kong, Luxembourg, Macao, Malta, Netherlands, Singapore, Switzerland, the UK and the US.
OECD Multilateral Convention
China is a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, effective 2016, which requires signatories to exchange information “on request,” and authorizes spontaneous and automatic exchange.
Common Reporting Standard (CRS)
China is a party to the Multilateral Competent Authority Agreement (MCAA) and has implemented CRS for the automatic exchange of information.
FATCA
China has not signed a FATCA agreement with the United States for the automatic exchange of account information, but is treated as having an “agreement in substance” for a Model 1 IGA.
