CHINA Law and Practice Contributed by: Mei Zhang, DaHui Lawyers
Taxation of Enterprises TREs
handle the filing on behalf of non-resident taxpayers, non-residents receiving China-sourced income are ultimately liable and should ensure compliance. Currently, Mainland China has signed bilateral DTAs with more than 100 countries and regions. These trea - ties typically offer more favourable arrangements for withholding tax rates on passive income. • Dividends: If the recipient is a tax resident of a con - tracting state and usually meets a certain share - holding ratio (such as 25%), the withholding tax rate can usually be reduced to 5% or lower. • Interests: Tax rates can be reduced to 8%, 7% or lower. • Royalties: The tax rate can be reduced to 7%, 6% or lower. 3.4 Capital Gains China does not levy a separate capital gains tax. Instead, gains from the disposal of assets are taxed as part of ordinary taxable income under the CIT or IIT regimes. Income received by resident individuals from the transfer of real estate within China is subject to an IIT rate of 20% under the “property transfer income” cat - egory. However, China has recently extended the tax exemption for individuals/families who have owned their only common house for more than five years and are transferring ownership. Taxable income is the bal - ance after deducting the original value of the property and reasonable expenses from the transfer income. Income from the transfer of shares in domestic listed companies is temporarily exempt from IIT. On the oth - er hand, income derived from the transfer of equity in non-listed companies is taxed at a rate of 20%. Non-resident individuals If a non-resident individual receives capital gains sourced from the transfer of real estate, equity or other property within China, procured capital gains are subject to the IIT rate of 20%, withheld by the payer at source. Taxation of Individuals Tax-resident individuals
If a TRE receives capital gains from the transfer of vari - ous assets, the amount received should be included in the enterprise’s annual taxable income and subject to a uniform CIT rate of 25% (though if eligible for preferential treatment, the corresponding preferential tax rate may apply). Non-TREs For non-TREs that have no PE in China, or whose cap - ital gains are not actually connected with their PEs in China, income from the transfer of real estate, equity, or other property in China is subject to withholding tax at a rate of 10%. If the capital gains are attributable to a PE, they should be included in the PE’s annual taxable income and taxed at a rate of 25%. 3.5 Employment Income Basic Taxation Rules For individual residents Income from wages and salaries, as well as labour services, belong to comprehensive income that is subject to a progressive tax rate with seven levels, ranging from 3% to 45%. For labour service remu - neration, the taxable income is generally equivalent to 80% of the gross receipt. Moreover, the basic stand - ard deduction for wages and salaries is RMB60,000 per year, in addition to other special deductions. Com - prehensive income is declared and paid in accordance with monthly withholding and annual settlement of IIT. For non-resident individuals Income from wages and salaries, as well as from labour services, is subject to a progressive tax rate with seven levels, ranging from 3% to 45%. For labour service remuneration, the taxable income amount is generally equivalent to 80% of the gross receipt, and the basic standard deduction for wages and salaries is RMB5,000 per month. If a withholding agent exists, it must withhold and pay the tax on behalf of the indi - vidual on a per-month or per-transaction basis, with no annual reconciliation required. Short-Term Assignment For foreign-sourced income generated from labour services earned by Chinese-domiciled individuals, their foreign-sourced income from the secondment
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