(Source: https://pltfrm.com.cn)
Foreign companies undertaking construction projects in China need to be aware of several tax considerations specific to their operations. The Chinese tax system has particular rules for construction and engineering projects conducted by foreign companies. As of my last update in April 2023, these are the main tax considerations:
- Corporate Income Tax (CIT): Foreign companies are subject to CIT on income earned from construction projects in China. The standard CIT rate is 25%, but this may vary depending on specific circumstances and types of projects.
- Withholding Tax: Payments to foreign companies for construction projects may be subject to withholding tax in China. The rate and applicability depend on the nature of the payments and any applicable double tax agreements (DTAs) between China and the foreign company’s home country.
- Value-Added Tax (VAT): Construction services are subject to VAT. The rate can vary, and foreign companies must comply with VAT invoicing and filing requirements. VAT on construction projects also involves the deduction of input VAT against output VAT.
- Permanent Establishment (PE): Engaging in a construction project in China could create a PE for the foreign company. This has significant tax implications, as it means the company would be subject to CIT on all China-sourced income attributable to the PE.
- Business Tax and Surcharge: While most services are subject to VAT, certain aspects of construction projects may attract other taxes and surcharges, depending on the nature of the services provided.
- Customs Duties and Import VAT: If a foreign company imports machinery, equipment, or materials for a construction project, customs duties and import VAT may apply. However, certain exemptions or preferential treatments may be available, particularly for large-scale projects or projects in specific industries or zones.
- Individual Income Tax (IIT): Salaries paid to employees (both local and expatriate) working on the construction project in China are subject to IIT. The employer is responsible for withholding and remitting these taxes to the Chinese tax authorities.
- Social Security Contributions: Foreign companies must contribute to China’s social security system for their employees working in China, including pension, medical insurance, and other social benefits.
- Environmental Taxes: Depending on the nature and location of the construction project, environmental taxes may apply.
- Real Estate Tax and Land Use Tax: These taxes may be applicable depending on the use of land and property in connection with the construction project.
- Contract Registration and Stamp Duty: Contracts for construction projects need to be registered with the tax authorities, and stamp duty may be applicable on such contracts.
- Transfer Pricing: Intra-group transactions, including services and goods provided to the construction project by related parties, must be in compliance with China’s transfer pricing regulations.
Foreign companies involved in construction projects in China should seek professional advice to ensure compliance with these tax laws and regulations. The tax environment in China is complex and dynamic, and professional guidance is crucial to navigate these challenges effectively.
PLTFRM is an international brand consulting agency that works with companies such as Red, Tiktok, Tmall, Baidu, and other well-known Chinese internet e-commerce platforms. We have been working with Chile Cherries for many years, reaching Chinese consumers in depth through different platforms and realizing that Chile Cherries exports in China account for 97% of the total exports in Asia. Contact us and we will help you find the best China e-commerce platform for you. Search pltfrm for a free consultation!
