China Wholly Foreign Owned Enterprises (WFOEs/ WOFEs)
have always been very popular in Guangzhou and Shenzhen, Guangdong. Then, what taxes need to be paid by WFOEs after business registration and during operations? Business China briefly explains as below:
I. Business tax of China WFOE
Business tax is mainly levied on technology service companies. It is also one of the major taxes that WFOEs need to pay for registration. Business tax is generally levied according to the invoice value of service industry×5%. Some foreign trade companies engaged in commission agency services may also be involved in making out service industry invoices. Service invoices can be applied to the tax authorities according to the business scope of a company.
II. VAT of China WFOE
VAT is mainly levied on WFOEs that sell goods and provide labor services. The tax rates are divided as follows:
1. 0%, mainly for export products. China does not impose VAT on export products, and the tax rate is 0%;
2. 3%. VAT is levied on small-scale companies selling products according to their tax-included sales amount;
3. 13%. The objects of taxation are agricultural products and industries related to the national economy and people’s livelihood, such as water, electricity, etc.;
4. 17%. VAT is levied on medium and large-scale companies whose annual sales amount reaches RMB 800,000 according to the value-added portion of sales.
Warm Prompts: If WFOEs involve in the import and export business, they need to apply for VAT qualifications at a tax rate of 17% after obtaining a full set of licenses, and also apply for export tax refund certification. In this case, WFOEs may enjoy China’s export tax rebate policies for specific products.
III. Corporate income tax of China WFOE
After the Income Tax Integration, WFOEs and domestic-funded companies pay the corporate income tax according to their net profit ×25% in the course of business operations. The corporate income tax is pre-paid on a quarterly basis, and finally settled at the end of each year.
IV. Individual income tax
After a WFOE recruits its employees, those employees whose salaries reach a certain base are required to pay individual income tax. The individual income tax is withheld and remitted by WFOEs. The tax base for employees from Mainland China amounts to RMB 3,500, and the tax base for expatriate staffs and employees from Hong Kong, Macao and Taiwan amounts to RMB 4,800. Revenues above the tax base are taxed at progressively higher rates, up to a maximum of 45%.
Business tax, VAT, corporate income tax and individual income tax are major tax payment items that WFOEs will be involved after the registration. In addition, WFOE may pay education surcharges, sewage charges and other expenses in their future operations.
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