Basic facts

 

Population             : 1.33 billion

Main language        : Mandarin ( Pu Tong Hua )

Currency                  : Reminbi or yuan ( RMB )

 

Economics Comm. : Asia Pacific Economic Co-operations, WTO

GDP growth              : 11.4 %  ( 2007 )

GDP per capita (ppp) : US $5,300 (2007)  *World Fact Book

GDP Sources            : Industry  49.7%,  Services  39.1%,  

                                                   Agriculture    11.7%

Inflation                : 4.7% ( 2007 )                     

 

 

Political environment

The Chinese Communist Party (CCP) has held power since the People’s Republic of China (PRC) was founded in 1949. Market reforms enacted over the past three decades have transformed the economy and raised living standards.

The two most senior officials are Hu Jintao, the CCP general secretary and state president, and Wen Jiabao, the premier.

 

Foreign trade and investment

 

Exports          : US $ 1.22 Trillion ( 2007 )

Imports          : US $ 917.4 Billion ( 2007 )

Leading export markets: The US, Japan and the EU.

Major exports: Office machines and data-processing equipment, telecoms equipment, and clothing and footwear.

China welcomes foreign investment, and as part of its World Trade Organization (WTO) commitment has opened many industries to foreign investment.

Regulations for Guiding the Direction of Foreign Investment set out four investment categories—encouraged, restricted, prohibited and permitted—that determine the level of government approval required and the tax exemptions available.

Foreign-exchange controls have been significantly relaxed. Entities in China do not need approval to open, change or close a foreign-exchange account. Moreover, entities are permitted to purchase foreign currency to make payments to foreign entities provided the payments do not exceed certain thresholds.

 

Business and financing

 

Business forms:

Wholly foreign-owned venture, equity joint venture, co-operative joint venture, joint stock company, limited liability company, holding company, representative office and branch

Overseas investors are increasingly turning to wholly foreign-owned ventures, as rules restricting foreign investment are relaxed.

 

Labour environment

 

Unemployment Rate:

9.5 %   (2006)  *Estimate of Economist Intelligence Unit

 

Minimum wage :

Varies by province

Guangdong

Shanghai

Beijing

Education levels vary by region. English-speaking college graduates and engineers are common in the capital, Beijing, or Shanghai, but personnel with specialized technical skills or training in accounting, finance, marketing and personnel management are scarce.

The labor law stipulates that wages be paid according to the principle of equal pay for work of equal value. New labor rules stipulate that foreigners may be hired only where there is a demonstrated need to do so; prior approval is required from local labor authorities.

 

Taxation

Corporate tax

A recently passed tax reform will unify the income tax treatment of domestic and foreign enterprises. As from January 1st 2008, both domestic and foreign-funded enterprises will be subject to a 25% statutory rate (subject to certain transition relief). The reform also includes rules relating to controlled foreign corporations, thin capitalization and foreign tax credits.

 

Individual tax

 

Progressive rates rising to 45 %

Individual income tax is imposed on both Chinese and foreign individuals at progressive rates to 45%. Persons resident for more than five years are taxed on worldwide income. Non-residents or persons in China for one to five years are subject to personal income tax on Chinese-source income, as well as foreign-source income borne by Chinese entities. Non-residents who have resided or stayed in China for more than 90 days but less than one calendar year are subject to tax only on Chinese-source income. Non-residents who have resided or stayed in China for less than 90 days in a calendar year are subject to tax on Chinese-source income borne by Chinese entities.

 

Capital gains

 

Company gains taxed as Income

A 10% withholding tax applies to net capital gains from the transfer of shares or equity interest in enterprises in China held by FIEs and from the transfer of shares in enterprises in China held by establishments set up by FIEs in China.

Individuals are taxed at 20% on their gains. Individuals are exempt from gains on the sale of their only private dwelling if they have occupied it for five years.

 

Indirect tax

 

Std  Value Added Tax (VAT) rate          : 17%

Lower Value Added Tax (VAT) rate       : 13%                       

Value-added tax (VAT) applies to most products at a rate of 17%. The lower VAT rate of 13% applies to grain and edible oil, books, water and certain agricultural inputs such as fertilizers. A 6% VAT rate applies to small enterprises. Exports are basically zero-rated and exporters may apply for a refund of VAT.

The business tax applies to a broad range of services, including insurance, construction, entertainment and the sale of immovable property. Business tax rates are 3–5% for most services, but a 20% rate applies to entertainment. There is an exemption from business tax on royalties paid for technology transfers into China by FIEs.

 

Tax administration and compliance

 

Tax Year:

Corporations: calendar year (accounting year subject to tax authority’s approval); Individuals: calendar year

 

FIEs must file provisional income tax returns with the local tax authorities within 15 days of the end of each quarter, and pay quarterly installments of tax, generally based on the profits for the quarter. Final settlement of the tax liability must generally be made within four months of the end of the tax year.

 

Additional tax information

 

Withholding taxes

Dividends 0%, Interest 10%, Royalties 10%.

 

Tax treaties

China has more than 75 tax treaties.

 

Dividends

Dividends are currently exempt under Chinese domestic law, but taxation may be re-introduced in the upcoming reform.

 

Revenue protection

There is transfer-pricing legislation.

 

Groups

There is no provision for group taxation.

 

Incentives

Special economic zones; export, high-tech and infrastructure projects

 

Other taxes

Consumption tax, Import duties, Land appreciation tax, Local land use tax, Resources tax, Stamp tax, Urban real estate tax, Vehicle and vessel license tax.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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