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How much taxes do Chinese people pay?

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Every passing year, we see an increase in the number of global investors eyeing the Chinese market. The Chinese economy is second to that of the United States of America. With a population constantly growing in its spending power, there is little wonder why many foreign investors are looking at this market.

Inasmuch as accounting practices remain common across countries, it has to be appreciated that China has some accounting and tax rules peculiar to it. There are requirements and regulations around tax fillings in China quite different from what we see in most Western countries. Any foreign investor going into this market must clearly understand the applicable tax laws and regulations.

As an investor in China or one targeting an entry into this market, you need a thorough understanding of the various tax regulations and relevant accounting practices such as the tax fillings China requires of you and the overall outlook and overview of China’s tax environment for you to operate with success and ease. Read on for an overview of how the tax system in China works.

The Applicable Tax Laws in China

The laws around taxes and taxation in China have proved to be quite dynamic, right from the year of their implementation, 1980. And these laws still keep evolving even to this day. The evolutionary nature of the tax laws in China is necessitated by the need of the tax authorities to ensure that even as the economy grows and develops, there is promoted and created such a stable and conducive environment for businesses to thrive.

Talking of the applicable tax laws affecting local and foreign businesses and individuals in China, here is a list of the most relevant three:

The Individual Income Tax, IIT, Law

The Corporate Income Tax, CIT, Law, and

The Value Added Tax, VAT, Law

How Much Taxes Do Chinese People Pay?-Inside China’s Individual Income Tax

According to the laws on taxation in China, all residents are subject to individual income tax on all their worldwide income. However, non-residents are not required to pay taxes on their worldwide earnings but are to pay tax on all income sourced from China. As per China’s tax laws, the sources of income subject to tax can be classified into two main sub-categories; Comprehensive Income and Operating Income. The Comprehensive Income sources are; salaries and wages/earnings from employment, income from labour service payment, royalty payouts, and authors remuneration. The Individual Income Taxes are progressive and are levied on a percentage of their earnings, starting from 3% to 45% of their earnings. The Operating income sources can be said to be those incomes derived from one’s business ventures. They will include income from a rental business, interest income, dividends, and the like business income sources. A good grasp of these is critical for you to make accurate tax fillings in China.

Every individual should submit their tax fillings China demands of them.