China tax system generates more confusion than any other aspect of market entry. Here are direct answers to the 12 questions foreign companies ask most frequently about taxation.
Tax FAQ Overview
According to China State Taxation Administration 2025 annual report, corporate income tax revenue reached RMB 4.8 trillion, VAT revenue reached RMB 7.2 trillion, and China has 117 bilateral tax treaties in force as of 2026. The average effective CIT rate for foreign-invested enterprises was 18.4% after preferential policies.
The 12 Questions
1. What is the CIT rate? Standard 25%. Preferential 15% for HNTE and qualifying FTZ enterprises. 2. How is taxable income calculated? Revenue minus deductible expenses minus tax-exempt income minus prior-year losses (carried forward 5-10 years). 3. How does VAT work? Output VAT (6-13%) charged on sales minus input VAT paid on purchases. Net amount remitted monthly or quarterly. 4. What are local surcharges? Urban maintenance and construction tax (7% of VAT in cities), education surcharges (5% combined), stamp duty, property tax. 5. What is the dividend withholding tax? Standard 10%, reduced by tax treaty. 6. Does China have transfer pricing rules? Yes — related-party transactions must be at arms length. Documentation required for transactions exceeding RMB 100M annually. 7. Can I get VAT refunds on exports? Yes — exported goods are zero-rated for VAT with input VAT refundable. 8. How often do I file? CIT quarterly prepayment plus annual settlement. VAT monthly for general taxpayers. IIT monthly. 9. What triggers a tax audit? Consistent losses, large related-party transactions, significant margin fluctuations. 10. Are tax incentives negotiable? National incentives are standard. Local incentives (rent subsidies, talent awards) are often negotiable. 11. What is the R&D super-deduction? 200% of qualifying R&D expenses deductible from taxable income. 12. How long must I retain tax records? Minimum 10 years for CIT, 5 years for VAT invoices.
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