China Tax & Investment Consultants Ltd

PRC TAX SYSTEM

Sources of PRC tax laws, regulations, rule and notices

	The National People's Congress (the NPC)
	PRC tax laws are promulgated by the National People's Congress. The State Council is given the power to promulgate implementation regulations under the PRC tax laws. One example is the PRC Tax Levy and Administration Law and its Detailed Implementation Regulations.

	The State Council
	Under the PRC Constitution Law, the State Council is the highest administrative authority. The State Council also promulgates regulations on its own and delegates its power to the Ministry of Finance to issues detailed implementation rules. One example is the PRC Value Added Tax Tentative Regulations and its Detailed Implementation Rules.

	The Ministry of Finance
	The Ministry of Finance has the power to enter into tax treaties with other countries or tax jurisdictions on behalf of the Chinese Government. In case of clash between the provisions between tax treaties and the domestic laws, regulations or rules, the provisions in the tax treaty shall prevail.

	State Administration of Taxation
	The State Administration of Taxation has the delegated power either on its own or jointly with other Ministries to issue binding circulars and notices. One example is the "Notice by the State Administration of Taxation concerning the Administrative Method of Issuing Tax Registration Certificates".

	Authority of PRC tax law and regulations
	Except for the laws promulgated by the legislative body (the NPC), the State Council and various administrative bodies directly under the SC make all the regulations, rules and notices. The tax treaties, the tax laws, regulations, rules and notices have descending order of authority.

Administration of Tax Collection and Share of Revenue

Under the Chinese tax system, the National tax bureaus and offices are responsible for collecting taxes for the Central People's Government while the local tax bureaus and offices are responsible for collecting taxes for local governments. The local customs under the State General Administration of Customs are responsible for collecting import duty, VAT and consumption taxes on imported goods.

Types of taxes collected by the Chinese Central and Local Government are listed below: -

	National Tax Bureaus and Offices		Local Tax Bureaus and Offices
1	Value added tax (VAT)	1	Business tax
2	Consumption tax	2	City maintenance tax
3	Income tax for foreign investment enterprises	3	Natural resource tax
4	Interest tax for individuals	4	Individual income tax
5	Vehicle purchase tax	5	Land value appreciation tax
6	Customs duty	6	City property tax
7	Vessel tonnage tax	7	Income tax for domestic companies
		8	Vehicle and vessel license tax
		9	Stamp tax
		10	Deed tax

Note that Foreign Investment Enterprises, Foreign Enterprises and foreign individual nationals are subject to about 16 types of PRC taxes respectively. In addition, an FIE has a legal obligation to contribute 4 to 5 types of social security payment for local employees under the PRC labor law as promulgated by the NPC, and various PRC social security regulations as issued by the State Council and ministries.

Revenues are shared by the Central People's Government and the Local Government in the following way respectively.

		Central People's Government	Local Government
1	VAT	75%	25%
2	Business tax	The portion over 5%	5%
3	Stamp Tax	97%	3%

The portion of business tax exceeding 5% paid by financial institutions and insurance companies goes to the Central People's Government. Stamp tax arising from stock market trading is shared between the Central People's Government and the Local Government. Other types of stamp duty go to the local government.

Main types of taxation for Foreign Investment Enterprises (FIE), Foreign Enterprises (FE) and foreign individuals: -

Turnover taxes:

Value added tax (VAT);
Business tax; and
Consumption tax;

Income taxes :

Enterprise income tax, and
individual income tax (IIT);

Other taxes

Stamp tax,
Deed tax,
Real Property tax,
Land value appreciation tax,
Vehicle purchase tax;
Vehicle and vessel use license tax
Customs duty

Foreign investment enterprises (FIE) are exempt from paying city maintenance tax. In addition, FIEs are exempted from customs duty and VAT on imported goods and equipment under certain circumstances. Please refer to the "tax incentives" under the Income Tax section.

< back