(Source: https://pltfrm.com.cn)
Foreign businesses operating in China, including those earning income from online advertising, are subject to various tax regulations. The primary taxes applicable are Corporate Income Tax (CIT), Withholding Tax (WT), and Value Added Tax (VAT).
- Corporate Income Tax (CIT): All companies in China, both domestic and foreign-invested, are subject to CIT on their taxable income generated within China. The standard CIT rate is 25%. This tax is calculated on an accrual basis, meaning income and expenses are recorded when they are earned or incurred, regardless of payment. Allowable deductions for CIT generally include costs of goods sold, operating expenses, financial expenses, depreciation, amortization, losses from bad debts, and research and development expenses.
- Withholding Tax (WT): This applies to China-derived income paid to non-resident enterprises. For instance, dividends paid to nonresident companies are subject to a 10% withholding tax, which may be reduced under tax treaties. Similarly, royalties paid to nonresident companies are subject to a 10% withholding tax, potentially reduced by tax treaties. The specific rates and conditions for WT vary based on the type of income and the residency status of the receiving entity.
- Value Added Tax (VAT): VAT in China is a tax added to goods and services during production and distribution. It is calculated based on the value added at each stage of the process. Companies pay VAT based on their sales to the government, calculated using the formula: VAT Payable = Output VAT – Input VAT. There are different VAT rates depending on the type of goods or services, and some businesses are exempt or zero-rated for VAT purposes.
Additionally, there are various tax incentives in place for foreign-invested enterprises. These include reduced CIT rates for certain types of businesses, such as high and new technology enterprises, and VAT incentives for small-scale businesses and specific regions.
Overall, foreign businesses, including those earning from online advertising, must navigate these tax regulations and may benefit from the various incentives offered. Proper setup and documentation are crucial for compliance and to take advantage of available deductions and incentives
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