Tax Around the World: China March 13, 2006
While we’re on the topic of China and how their personal savings rate is 30%, (vs. -0.4% in USA), let’s take a look at their taxation laws.
- The tax on an individual’s income is progressive. As of 2005, an individual’s income is taxed progressively at 5% - 45%.
- A limited company in China is liable for tax at the rate of 33% in 2005.
- Companies in China that are located in specific legally defined areas pay company tax of 24%.
Capital Gains Tax in China
- An individual’s capital gains are taxable in China at the rate of 20%.
- Capital gains tax for a Chinese company is added to the regular tax.
- A 10% deduction at source is made from the capital gains of a foreign company in China.
- On taxing capital gains from the sale of real estate, when calculating the capital gain the purchase cost is deducted from the sale price at the 20% rate. When the capital gains are in excess of 50% of the purchase price, the rate of capital gains tax fluctuates between 30% - 60%. (It is 60% when the capital gain is over 200% when compared to the cost).
Ouch! Compare that with USA’s capital gains tax for real estate. As of 2006, Real estate gains in the US are tax free up to $250,000 gains for an individual and $500,000 for a married couple.
2005 China National Tax Brackets
(for an Individual)
| Tax Base - Yuan (US$ equivalent) | Tax |
| 1 - 500 (US$62.11) | 5% |
| 501 - 2,000 (US$248.47) | 10% |
| 2,001 - 5,000 (US$621.18) | 15% |
| 5,001 - 20,000 (US$2,484.72) | 20% |
| 20,001 - 40,000 (US$4,969.44) | 25% |
| 40,001 - 60,000 (US$7,454.16) | 30% |
| 60,001 - 80,000 (US$9,938.88) | 35% |
| 80,001 - 100,000 (US$12,423.59) | 40% |
| 100,001 and above | 45% |
* The table relates to income from a business. Income from a wage is taxable at 5% - 35%.
* Passive income such as interest and royalties is taxable at a standard rate of 20%.
Overseas Income
- An individual and company who are Chinese residents are also taxed on their income outside China and receive a credit for overseas taxes.
- Qualification for residence for an individual:
- Permanent residence in China while an individual who has no permanent residence in China but has lived in China for less than 5 years is taxed on his income in China, or overseas income that has its origins in China.
(n.b.: as of 3/10/06, 8.0492 Yuan = US $1)