China adopts a low-tax policy for foreign-invested enterprise, and a preferential tax policy for the areas or those projects listed in the state-encouraged industrial catalogue for foreign investment. At present, taxes applied for foreign-invested enterprises and overseas individuals (including Hong Kong, Macao and Taiwanese compatriots) include: corporate income tax, personal income tax, operation linkage taxes (including value-added tax, consumption tax and business tax), tariff, land value-added tax, resource tax, urban real estate tax and so on.
1. Income tax
??? The income tax of foreign-invested enterprises should be levied at the rate of 33 percent; but in special economic zones, national high and new technology industrial development zones, national economic and technological development zones, the income tax paid by foreign-invested enterprises is at the rate of 15 percent. In open coastal areas and the capital cities of each province, income tax of the foreign-invested enterprises remains at the rate of 24 percent.
??? Generally, the foreign-invested enterprises can enjoy the preferential treatment that starts from the first profit-making year. Corporate income tax will be exempted for the first two years and half of the corporate income tax will be exempted for the following three years. If listed in the state-encouraged industrial catalogue and established in mid-western areas, the foreign-invested enterprises will enjoy another three-year exemption of a halved income tax level after the five-year tax exemption and reduction period. If foreign-invested enterprises remain advanced in technology, corporate income tax will be exempted for the first two years and half of the corporate income tax will be exempted for the following six years starting from the first profit-making year. The export-oriented enterprises enjoy the general preferential treatment, except that if annual total export volume makes up the 70 percent of the annual sales volume, half of the corporate income tax will be exempt. If the homemade equipment purchased by the foreign-invested enterprises within the total investment falls into the catagry of duty-free imported equipment, the corporate income tax will be deducted in accordance with related regulations.
2. Operation link tax
??? Since the taxation system reform in 1994, China has started the unified value-added tax, consumption tax and business tax both for foreign-invested enterprises and home enterprises, and has exempted business tax on technology transfers for overseas enterprises and foreign-invested enterprises. If the homemade equipment purchased by the foreign-invested enterprises, within the total investment, falls into the catagry of duty-free imported equipment, the full amount of value-added tax on such domestic equipment will be refunded.
3. Import link tax
??? Since 1991, the Chinese government has reduced the import tariff rate eight times. At present, the average tariff rate has been reduced to 16.5 percent. When domestic projects or foreign-invested projects are listed in the stated-encouraged catalogue or are supported by the state, the imported equipment will be exempt from import duties and import link value-added taxes