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Tax Minimization in China

Tax Minimization in China

Tax minimization in China is fundamentally different from tax evasion. The latter is considered the illegal avoidance of paying the due taxes, while minimization strategies make use of various procedures to reduce the total amount of taxes. The individual or company in China will still have to observe the taxation laws but, according to the specifics of each case, will be able to pay less amounts of tax each year.

Tax minimization strategies in China

Small and large businesses can use various methods to reduce the amount of taxes they have to pay at the end of a tax year. Using the services of a professional accountant is the best way to maximize your tax planning strategies, but there are certain steps any business owner in China can take. 

Prepayments are one of the preferred tax minimization method for companies. Businesses are entitled to deductions for prepayments, so if the possibility exists, you might want to consider prepaying some of the rent for your office in China or making some investments in equipment or office supplies. 

The capital gains tax discount is another strategy you can consider to reduce some of your taxes. A discount is generally applicable after the assets have been held for a specific period of time (in most cases, 12 months). You can also erase any existing bad debts until the end of the financial year.

Although some tax minimization methods are suitable for all types of businesses in China, it is best to discuss to a professional and see if a method is suited for your company. Our lawyers in China can help you know more about the laws on taxes, including the China Enterprise Income Tax Law, transfer pricing law and the rules for profit repatriation. 

Paying taxes in China

China has a standard company income tax rate of 25% and lower rates can apply to small businesses. A withholding tax for dividends, interest and royalties also applies. Individuals are taxed according to seven progressive tax rates, between 3% and 45%.

The tax year in China is generally the same as the calendar year. Annual filing is mandatory within three months from the end of the year for individuals. Our lawyers in China can give you detailed information about the filing requirements, so that you can avoid penalties.

If you are a foreign investor and want to know more about the legislation for investments, you can contact our law firm in China