China corporate tax rate, incentives, filing dates, and compliance explained

Why expand to China?

When we think of China, these two things come to mind—the tag of 'the world's factory' owing to its manufacturing prowess, and its position as the world's second largest economy by nominal GDP and largest by purchasing power parity.

Despite its trade war with the US and the political and cultural complexities it poses for businesses, China remains a top destination for global companies. Doing business in China means gaining access to its skilled yet affordable labour, world-class infrastructure, a 1.4 billion-strong consumer base, and low manufacturing costs. Add to that business-friendly policies and active government support for foreign enterprises.

However, companies looking to enter and succeed in this dynamic market must familiarise themselves with its multi-layered corporate tax regime and navigate its regulatory and legal complexities.

Corporate tax in China

Both domestic and foreign enterprises are subject to corporate income tax (CIT), also called enterprise income tax.

Resident enterprises are taxed on worldwide income. Non-resident enterprises with no permanent establishment (PE) pay corporate income tax only on China-sourced income.

Meanwhile, non-resident enterprises that operate in China through a PE are subject to enterprise income tax only on income attributable to that PE. This includes China-sourced income and any foreign-sourced income that is effectively connected with the PE’s activities in China.

Apart from corporate income tax, businesses are subject to several other taxes, such as withholding tax, individual income tax, value-added tax (VAT), and consumption tax.

The State Taxation Administration is responsible for collecting taxes and enforcing Chinese tax laws.

Tax rates and structures

The standard corporate income tax rate in China is 25%. However, eligible businesses benefit from the following preferential rates:

• Small and thin-profit enterprises with annual taxable income up to RMB 3 million are eligible for an effective tax rate of just 5%—valid till December 31, 2027.
  
• High-tech enterprises qualify for a lower CIT rate of 15%.
  
• Technology-advanced service enterprises also get a 15% CIT rate.
  
• Software enterprises and integrated circuit design enterprises are eligible for a five-year tax exemption and a reduced rate of 10% thereafter.
  
• Companies engaged in pollution prevention and control can avail of a preferential tax rate of 15% till December 31, 2027.
  
• Companies engaged in specific sectors or industries (AI, biomedicine, civil aviation) or in the western region of China can avail of a reduced rate of 15%.
  

To avail of these low tax rates, companies must fulfil certain conditions and pass an assessment.

What constitutes taxable income?

In China, taxable income is gross income minus non-taxable income, tax-exempt income, other deductions, and allowable losses brought forward from previous years.

Gross income refers to monetary and non-monetary income derived from various sources such as the sale of goods or services, dividends, interest, royalties, rental, donations, and transfer of property.

Non-taxable gross income includes government appropriations and funds, administrative fees collected and administered as per law, and any other government-specified non-taxable income.

To calculate taxable income, companies may deduct certain expenses incurred in the generation of income. These include:

• Organisational and start-up expenses
  
• Salaries and staff wellness charges
  
• R&D costs
  
• Depreciation and amortisation costs
  
• Bad debts
  
• Interest expenses on loans
  
• Advertising costs (up to a limit)
  
• Charitable donations (up to a limit)
  
• Entertainment fees (up to a limit).
  

Allowable losses can be carried forward for five years to offset annual taxable income in subsequent years. This carry-forward period is extended to 10 years for high-tech enterprises, small and medium-sized tech enterprises, and qualified integrated circuit production enterprises.

Expenses that don't qualify for tax deduction are:

• Enterprise income tax payments
  
• Fines, penalties, and overdue tax surcharges
  
• Dividends and profit distribution
  
• Unverified expenses
  
• Sponsorship charges
  
• Any other type of donation
  
• Expenses not related to income generation.
  

Tax incentives and tax exemptions

China's industry-oriented tax incentives aimed at attracting foreign investment income have proved a success, with 59,000 new foreign-funded enterprises set up in 2024, up 9.9% from 2023.

As previously mentioned, enterprises engaged in high-tech, software, and integrated circuit production sectors and working in designated trade zones are eligible for reduced corporate income tax rates and tax exemptions.

In addition, foreign enterprises involved in agriculture, forestry, animal husbandry, and fishery can have their corporate income tax halved or exempted altogether.

Involvement in environmental protection and water and energy conservation projects can get companies a 3 + 3 tax holiday—three years of tax exemption followed by three years of corporate income tax reduced by 50%.

Newly established qualified enterprises in the impoverished areas of Xinjiang can also claim a 2 + 3 tax holiday till December 31, 2030.

Also mentioned earlier, eligible small businesses receive a reduced corporate tax rate of just 5%.

When to file tax returns

China has a single, standard deadline for filing annual corporate income tax returns. Companies must file their final enterprise income tax return within five months after the end of the tax year, which means by 31 May of the following year, as the tax year runs from 1 January to 31 December.

In addition to the annual filing, businesses are required to make provisional corporate income tax payments on a monthly or quarterly basis, which must be settled within 15 days after the end of each relevant period.

Taxes are to be paid in RMB through designated banks or the State Taxation Administration's e-payment system.

Reducing tax burden with double taxation agreements

Non-resident enterprises seeking to reduce their tax burden in China can check to see if their countries have double taxation agreements with China. China has signed tax treaties with over 100 countries. Under these agreements, foreign investors avoid paying tax on the same income in two countries and enjoy preferential tax rates in China.

Singapore has a comprehensive DTA with China, signed in 2007 and modified in 2022. Under its provisions, Singapore companies with China-sourced income receive a tax credit for the tax they pay in China, and vice versa. The bilateral agreement also reduces withholding tax rates (the standard rate being 10%) on certain income paid by tax resident enterprises of Singapore to tax resident enterprises of China, and vice versa. The reduced withholding tax rates are 5% for dividend income, 6% for income from royalties, and 7% for interest income under applicable conditions.

Tax treatment of dividends

Dividends paid by Chinese tax-resident enterprises to non-resident shareholders are generally subject to a 10% withholding tax, unless a reduced rate applies under an applicable double taxation agreement.

Investment deferral on dividends

Non-resident shareholders who receive dividends from a Chinese tax resident enterprise and invest the amount in China are allowed to defer paying withholding tax if the dividends are reinvested directly into China rather than remitted offshore. Under this policy, dividends distributed by a Chinese tax-resident enterprise to a foreign investor aren't subject to immediate withholding tax, provided the reinvestment meets prescribed conditions.

To qualify, the dividend income must be reinvested into encouraged or permitted projects in China, such as capital injections, equity acquisitions, or the establishment of new enterprises. The reinvestment must be made using the dividend proceeds, and relevant filing and reporting requirements with the tax authorities must be satisfied.

If the reinvested funds are later withdrawn or the investment no longer meets the qualifying conditions, the deferred withholding tax becomes payable, along with any applicable surcharges. This incentive is designed to encourage long-term foreign investment and improve cash flow efficiency for overseas investors expanding their presence in China.

Reinvested profits tax credit (2025–2028)

From 1 January 2025 to 31 December 2028, China has significantly enhanced its reinvestment incentive for foreign investors by introducing a 10% tax credit on qualifying reinvested profits.

Under this policy, foreign investors who reinvest profits earned in China into Encouraged Industries—such as advanced manufacturing, high technology, green energy, and modern services—are eligible to receive a tax credit equal to 10% of the reinvested amount. This incentive applies in addition to the existing withholding tax deferral on reinvested dividends.

The tax credit can be used to offset future Chinese withholding taxes, including taxes on dividends, interest, and royalties, improving long-term tax efficiency and cash flow for foreign investors expanding their China operations.

To retain the benefits of China’s reinvestment incentives, the reinvested funds must generally be held in China for at least 60 months (5 years). If the investment is withdrawn, transferred, or otherwise fails to meet qualifying conditions before the end of this holding period, the previously deferred withholding tax becomes payable, together with applicable interest.

If the investment is maintained for the full five-year period, the 10% reinvestment tax credit may be used to offset the original deferred withholding tax, effectively converting what would otherwise be a temporary tax deferral into a permanent tax saving.

This structure encourages long-term foreign investment and discourages short-term capital recycling.

Historical tax rates and recent reforms

From a peak of 33% in 1998, China's corporate income tax rate has remained stable at the current 25% since 2008.

Up till 2007, China followed a dual tax regime with a standard enterprise income tax rate of 33% and preferential tax rates for foreign companies and small businesses.

Foreign investment enterprises enjoyed numerous tax incentives that brought the rate down to 10-15%. Small and low-profit enterprises in China also benefited from reduced rates of 18% or 27%. The new corporate income tax law, passed in 2007 and effective from 2008, established a flat tax rate of 25% for Chinese tax resident enterprises and non-resident enterprises alike.

Apart from this major reform, China has in recent years focused on targeted incentives for small businesses, encouraged industries (such as high-tech enterprises), and regions (western region, Hainan Free Trade Port, etc).

Additionally, the country is in the process of reforming other tax regimes, such as value-added tax and consumption tax.

Other taxes to take note of

Apart from corporate income tax, withholding tax, and individual income tax, businesses—including foreign enterprises—might be subject to the following taxes:

Value-added tax (VAT)

Value-added tax (VAT) is one of the most significant indirect taxes in China and applies to the sale of goods, provision of services, and importation of goods. China reformed its VAT system in 2019, replacing the former 17% standard rate with a tiered structure.

Currently, VAT is levied at multiple rates depending on the nature of the transaction. Goods and manufacturing activities are generally subject to a 13% VAT rate, while transportation, construction, and real estate services are typically taxed at 9%. Most modern services, such as consulting and professional services, are taxed at 6%. Certain exports and cross-border services may qualify for a zero-rated VAT treatment, subject to meeting specific conditions.

VAT is usually collected and remitted by businesses on a monthly basis, and input VAT incurred on business expenses can generally be credited against output VAT, provided proper documentation is maintained.

Consumption tax

Imposed on 14 categories of consumables, such as alcohol, tobacco, jewellery, cosmetics, automobiles, gasoline, luxury watches, etc. Tax rates are dictated by sale price and/or volume.

Land appreciation tax

Levied on gains from the sale of real estate at rates ranging from 30% to 60%.

Real estate tax

Levied annually on land and buildings used for business or leased. Tax rates vary depending on the assessment method—1.2% of the original value plus a 10-30% deduction offered by local governments, or 12% of the rental income.

Resources tax

Imposed on the use of natural resources (crude oil, natural gas, salt, coal, etc) and assessed on the basis of sales turnover or tonnage/volume.

Deed tax

Levied at rates of 3-5% on the sale, purchase, exchange, or gifting of real estate or ownership of land-use rights.

Local education surtax

Imposed at the rate of 3% of the amount of VAT or consumption tax.

Other taxes

Businesses might also be subject to customs duties on imports, stamp duty, payroll tax, vehicle and vessel tax, and so on.

Tax compliance and registration

To start paying taxes in China, businesses must first register with the State Taxation Administration within 30 days of getting their business licence.

The next step is to understand applicable corporate income tax rates and remember tax filing and payment deadlines. Remember, annual tax returns must be filed and annual tax payments settled by May 31. Failure to file tax returns and pay taxes on time can lead to fines and a daily surcharge.

In addition, companies operating in China are required to maintain proper accounting records and prepare financial statements in accordance with Chinese accounting standards. As part of annual tax compliance, many enterprises—particularly foreign-invested enterprises—are required to submit an annual audit report prepared by a China-registered public accounting firm together with their enterprise income tax filings.

Whether an audit is mandatory depends on factors such as the company’s ownership structure, size, industry, and local tax authority requirements. In practice, foreign-invested enterprises are commonly subject to annual audit requirements, especially when filing their final annual enterprise income tax return or undergoing tax reconciliation.

It's also critical for businesses, especially non-resident enterprises, to fulfil their tax obligations in China, which has strict General Anti-avoidance Rules (GAAR) in place. Any suspicion of tax avoidance, such as abusing preferential tax rates or tax treaties, can attract a GAAR investigation and subsequent action.

Moreover, China has entered the "Golden Tax IV" phase, which makes aggressive tax avoidance, underreporting, or invoice manipulation far more difficult for foreign-invested enterprises. This is because tax authorities can now cross-check electronic invoices (e-fapiao), bank transactions, customs data, and corporate filings across multiple government agencies.

As a result, companies operating in China must ensure:

• Accurate and timely issuance and receipt of e-fapiao
  
• Consistency between tax filings, financial statements, and banking records
  
• Proper documentation for deductions, incentives, and treaty claims
  

Failure to comply may trigger automated risk alerts, targeted audits, or enforcement action.

How Aspire supports your expansion into China

Entering the massive Chinese market demands agility in managing international payments, cash flow, and tax compliance. Aspire has the tools to support your expansion and help you scale at speed:

• First, sign up for our business account, which allows you to pay in 30+ currencies across 130 countries. It comes with unlimited virtual corporate cards (one for each employee), ensuring healthy cash flow levels all through your China entry and expansion phase.
  
• Fulfil all your payment obligations while keeping costs low with our market-leading FX rates and transparent pricing. You can even earn cash backs on your daily spend.
  
• With our global payments feature, you can make same-day transfers in 15+ major currencies and ensure your vendors and partners are always paid on time.
  

Frequently asked questions

Do foreign companies pay tax in China?

Yes, foreign enterprises are subject to corporate income tax in China at 25%, the same rate applicable to resident enterprises. However, foreign companies working in encouraged industries (high tech enterprises) or regions can avail of reduced tax rates.

Is China heavily taxed?

China might seem like a heavily-taxed country given its dependence on indirect taxes (VAT and consumption tax). When compared to a country like, say, Singapore, its corporate income tax rate is also higher at 25% compared to Singapore's 17%.

However, China offers numerous industry and region-specific tax incentives and has a wide network of double taxation agreements, which help foreign companies significantly reduce their tax liability in that country.

What is the maximum corporate tax rate in China?

The maximum corporate income tax rate in China is 25% for both domestic and foreign enterprises.

What is the double tax treaty between Singapore and China?

The Singapore-China double taxation treaty, in existence since 2007, helps companies from the two contracting states to avoid paying dual tax on the same income and benefit from reduced withholding tax rates on certain income types.

Are there any tax incentives for businesses in China?

China offers tax holidays, preferential tax rates, and tax credits to attract foreign investment income. For example, specific projects (agriculture, fishery) and encouraged industries (high-tech enterprises) are eligible for tax exemptions and reduced tax rates.