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Hong Kong Level: Dividends Are Generally Not Taxable in Hong Kong

Hong Kong’s tax system follows the territorial source principle and does not impose a dividend withholding tax.

• Dividend Income: Regardless of whether the shareholder is a Hong Kong resident or a non-resident (foreign person), dividends received from a Hong Kong company are generally not subject to Hong Kong individual income tax or salaries tax.

Therefore, at the dividend payment stage, the Hong Kong company is not required to withhold any tax on behalf of the shareholder.

Chinese Mainland Level: Tax Liability Depends on Your “Tax Resident” Status

(For individual person whom working or living inside China mainland)

The “tax residence” status is the key factor in determining whether you need to pay tax in Mainland China on this Hong Kong dividend.

1. If you have no domicile in China and your residence period is short

According to regulations, for an individual without a domicile in China, and their cumulative residence within a tax year does not exceed 183 days, income sourced outside China is exempt from individual income tax. Dividends paid by a Hong Kong company are considered foreign-sourced income and typically fall outside this taxable scope.

2. If your cumulative residence in a tax year reaches 183 days

At this point, you would be classified as a resident individual without a domicile in China, and in theory, you would be required to pay tax on your worldwide income. However, an important “Six-Year Rule” exemption applies:

• Continuous residence for less than six years: If your cumulative residence in China reaches 183 days but the number of consecutive years in which you have met this threshold is less than six, then your income derived from sources outside China and paid by an overseas entity or individual is exempt from individual income tax. Dividends from a Hong Kong company fall into this category.
• The “absence exceeding 30 days” exception: When calculating this “consecutive six years,” if in any one of those years you have a single absence from China exceeding 30 consecutive days, the consecutive-year count will reset to zero, and you can still enjoy the aforementioned foreign-sourced income exemption.
• Continuous residence for six full years: If you have reached the 183-day threshold for six consecutive years (starting from 2019), the foreign-sourced income exemption will no longer apply. At that point, regardless of who pays the Hong Kong dividend, you will need to declare and pay individual income tax in Mainland China.

Summary and Action Recommendations

Your individual income tax liability can be simplified into the following scenarios:

Scenario	China Tax Liability
Residence < 90 days	Hong Kong dividends are generally not subject to tax in the China Mainland.
Residence ≥ 183 days, but less than 6 consecutive years (or with an absence exceeding 30 days)	Dividends paid by a Hong Kong company are treated as foreign-sourced income and are generally exempt from Mainland individual income tax.
Residence ≥ 183 days for 6 consecutive years	Hong Kong dividends must be declared and taxed in the Mainland, potentially at 20%.

Given the complexity of determining tax residency status, especially concerning the “Six-Year Rule” and the application of tax treaties, it is recommended that you:

• Keep proper records of your entry and exit dates to accurately calculate your days of residence.
• Consult a professional cross-border tax advisor (e.g. Colvass Tax Consulting Ltd) regarding your specific residence situation and shareholding structure to obtain accurate advice for your individual circumstances.

ref link:

Criteria for Individuals to Be Considered Chinese Tax Residents

The Six-Year Rule for non-domiciled individuals

The Six-Year Rule is a special buffer rule for non-domiciled individuals who are tax residents in China by virtue of the 183-day test. It determines when their worldwide income becomes fully taxable in China. In short: a non-domiciled individual who is a resident for less than six consecutive years (or who breaks the chain) can still enjoy an exemption on foreign-sourced income paid by overseas entities or individuals; once the six-year chain is complete, worldwide income becomes fully taxable from the seventh year.

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1. Core condition for the Six-Year Rule

For a non-domiciled individual who resides in China for 183 days or more in a tax year, the six-year rule applies as follows:

Condition in the preceding six consecutive years	Tax treatment in the current tax year
In each of the six years, the individual resided 183 days or more in China, and in no year did a single departure exceed 30 days	Income from both within and outside China is subject to Chinese individual income tax (full worldwide taxation)
In any of the six years, residence was less than 183 days, or a single departure exceeded 30 days	Foreign-sourced income paid by overseas entities or individuals is exempt from Chinese IIT

This is stated in the official Announcement on March of 2019 issued by the Ministry of Finance and the State Taxation Administration.

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2. How “preceding six years” is counted

• The “preceding six years” means the six consecutive tax years immediately before the current tax year (i.e., year −1 to year −6).
• Crucially, the starting year for counting is 2019. Years before 2019 are disregarded (“cleared to zero”). Therefore, 2024 was the first year in which the six-year chain could potentially be completed (2019.1.–2024.12.31).

This transitional rule meant that all non-domiciled individuals enjoyed the foreign-income exemption through 2024, regardless of how long they had actually lived in China before 2019.

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3. The “30-day reset” rule

If in any tax year during the six-year period the individual has a single departure from China exceeding 30 days, the continuous six-year count is broken and reset to zero. The counting starts anew from the following year.

This is a key planning point: a carefully timed single trip of more than 30 days can reset the clock and preserve the foreign-income exemption.

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4. How residence days are counted

For the 183-day test (and for the six-year chain), days are counted as follows:

• A day on which the individual stays in China for 24 hours or more counts as one residence day.
• A day on which the individual stays less than 24 hours does not count as a residence day.

Example: A Hong Kong resident who commutes to Shenzhen every Monday morning and returns Friday evening—where Monday and Friday stays are each less than 24 hours—will have only 3 countable days per week (Tuesday, Wednesday, Thursday). Over 52 weeks, that is 156 days, below the 183-day threshold, so they would not be a resident individual at all.

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5. The exemption and its procedural requirement

If the six-year chain is not completed, the foreign-sourced income exemption applies only if the individual files a record with the competent tax authority (备案). The exemption covers income sourced outside China and paid by overseas entities or individuals.

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6. Practical illustration

Consider a non-domiciled individual who has been in China since 2019:

Year	Days in China	Single departure >30 days?	Six-year chain status
2019	210	No	Year 1
2020	195	No	Year 2
2021	185	No	Year 3
2022	207	No	Year 4
2023	184	No	Year 5
2024	195	No	Year 6 (chain complete)
2025	200	No	Worldwide income fully taxable

If, instead, in 2023 the individual had taken a 35-day trip abroad, the chain would have reset. The six-year count would restart from 2024, and the foreign-income exemption would continue to apply in 2025.

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Summary table

Concept	Rule
Who it applies to	Non-domiciled individuals who are resident by the 183-day test
Effect of completing six years	Worldwide income becomes fully taxable from year 7
Effect of not completing six years	Foreign-sourced income paid overseas is exempt (with filing)
Counting start date	2019 (pre-2019 years disregarded)
Reset trigger	Any single departure exceeding 30 days in a tax year
Day counting	Only days with 24+ hours of stay count

The Six-Year Rule is essentially a transitional safe harbour designed to give non-domiciled residents time to adjust before full worldwide taxation applies. It is separate from—and additional to—the domicile and 183-day tests that determine resident status in the first place.

ref link:

criteria for individuals to be considered chinese tax residents

Criteria for Individuals to Be Considered Chinese Tax Residents

关于在中国境内无住所的个人居住时间判定标准的公告

https://www.gov.cn/zhengce/zhengceku/2019-10/16/content_5440701.htm

Who should pay individual income tax

https://english.shanghai.gov.cn/en-PersonalIncomeTaxPolicies/20231215/a47eca3fa1384bffb8c991809d2a4c4e.html#1

Criteria for Determining the Period of Residence of Individuals Without a Domicile in China

https://fgk.chinatax.gov.cn/eng/c102962/c102967/c102997/c103004/c5248304/content.html#1

Criteria for Individuals to Be Considered Chinese Tax Residents

1. Resident individual

An individual is a resident individual if either condition applies:

• They have domicile in China; or
• They do not have domicile in China, but have resided in China for 183 days or more in a tax year.

2. Non-resident individual

An individual is a non-resident individual if either condition applies:

• They have no domicile in China and do not reside in China; or
• They have no domicile in China and have resided in China for less than 183 days in a tax year.

3. Tax year

The tax year is the calendar year, from January 1 to December 31.

4. Domicile

Domicile means habitual residence in China based on factors such as:

• domiciliary registration, (e.g. Chinese ID, Chinese nationality)
• family ties,
• economic interests.

Habitual residence is a legal criterion for defining a taxpayer. It does not mean actual residence or physical presence for a particular period of time.

Example:
If an individual leaves China to stay, work, visit family, or tour elsewhere, but is expected to return to reside in China, China may still be their habitual residence.

Simple decision rule

Situation	Tax status
Has domicile in China	Resident
No domicile + resided in China 183 days or more in tax year	Resident
No domicile + resided in China less than 183 days in tax year	Non-resident
No domicile + does not reside in China	Non-resident

Tax Impact:

Under the Individual Income Tax Law, having a domicile in China makes you a resident taxpayer, which means you are generally subject to individual income tax on your worldwide income (both domestic and foreign sources), not just income earned inside China.

The Six-Year Rule:

Foreign individuals who do not have a domicile in China may benefit from special rules (such as the six-year rule) that can limit or exempt certain foreign-source income from Chinese taxation under specific conditions. (e.g. foreign sources income from HK)

An inactive company in Hong Kong which does not have any accounting transaction is required to officially declare itself as dormant as it will not be automatically considered dormant.

To declare as a dormant company in Hong Kong, this includes filing a dormant company tax return, maintaining its records, and complying with changes in corporate law. To apply for dormancy, the company needs to pass a special resolution with at least 75% of the shareholders’ votes. Then the company directors must file the special resolution with the Companies Registry within 15 days of passing the special resolution.

“Dormant” is a legal term that applies to Hong Kong company. The company must have “no significant accounting transactions” during the financial year. The costs incurred for the company to keep its annual registration/incorporation do NOT count as signification accounting transactions, for example the registry office address, secretary services, business registration fee etc…

The directors/shareholders/owners are still responsible for handling and pay for the annual return, tax return (if any), and business registration renewal on time, and they must report any changes in its registration to the Companies Registry department.

The benefits of declaring a company dormant include reduced costs and formalities, preservation of the legal entity for future use, better assets protection. The inactive status also save the time and cost for filing an annual return, appointing auditors, preparing audited financial statements. (Audit Exemption and Reporting Exemption for Dormant Company in Hong Kong)

Annual compliance requirements for a dormant company

a dormant status remains a legal entity and is required to follow certain legal regulations.

A dormant company must:

Having a registered office and at least 1 director, 1 shareholder, and a company secretary
Reporting any changes in the company’s officers or registered office with the Companies Registry
Renewing business registration certificate
Filing Profit Tax Returns if required by the Inland Revenue Department
Pay for the above relevant service fees and government fees

Stop being dormant? Re-activate the company.

If you no longer want the dormancy status, you will need to re-activate the company.

You will have to pass a special resolution with the majority of the shareholders’ votes and notify the Companies Registry about the cessation of the dormant status and declare that the company intends to enter into an accounting transaction.

The company will be deemed to have ceased to be dormant by making an accounting transaction even without notifying the Registrar.

https://www.cr.gov.hk/en/faq/local-company/dormant-companies.htm

Accurate record keeping can help you to remain organized, compliant and gain insight into the financial position of your business. It also provides your bookkeeper with all of the information they require to effectively manage your finances and tax. But collecting and organizing these documents can be a daunting task. We have compiled a checklist of information to share with you:

1. Income Documents

• Sales invoices and customer receipts.
• Records of payments received (cash, checks, electronic transfers).
• Bank deposit slips or merchant account statements (e.g., PayPal, Stripe).
• Income summaries or sales reports.
• Refund/return records (if applicable).

2. Expense Documents

• Vendor bills, receipts, and purchase orders.
• Utility bills (electricity, water, internet, phone).
• Rent/lease payments and mortgage statements.
• Payroll records (salaries, wages, tax withholdings, benefits).
• Travel, meal, and mileage expense receipts.
• Office supplies, software licenses, and subscription receipts.
• Tax-deductible expenses (charitable donations, professional fees).

3. Bank & Credit Card Statements

• Monthly bank statements for all accounts.
• Credit card statements (business/personal if used for business).
• Loan or line of credit statements.
• Reconciliation reports (to match records with bank statements).

4. Tax Documents

Filed tax returns (income tax, sales VAT, payroll tax, etc…).

• Withholding tax paid in other countries / regions.
• Sales VAT tax records (collected and paid).
• Payroll tax filings (e.g., employer’s returns, individual income tax returns).
• Correspondence with tax authorities (notices, audit letters).

5. Payroll Records

• Employee details (full name, ID / passport copy, hire date, employment contract).
• Timesheets, pay stubs, and overtime records.
• Benefits documentation (health insurance, retirement contributions).
• Contractor agreements and payment records.
• Unemployment tax records (if applicable).

6. Assets & Liabilities

• Asset purchase receipts (equipment, vehicles, property).
• Depreciation and amortization schedules.
• Loan agreements (terms, payment schedules).
• Lease/rental contracts.
• Capital contribution records (owner investments).

7. Legal & Compliance Documents

• Business licenses and permits.
• Articles of Incorporation/LLC Operating Agreements.
• Insurance policies (liability, property, workers’ comp).
• Contracts (vendors, clients, partnerships).

8. Financial Statements

• Balance Sheets.
• Profit & Loss (Income) Statements.
• Cash Flow Statements.
• Budget vs. actual reports.

9. Other Records

• Petty cash logs.
• Inventory lists and valuation reports.
• Audit reports or internal review documents.
• Digital backups of all records (cloud storage, encrypted drives).

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Organization Tips

• Categorize: Use folders (physical/digital) for each category (e.g., “2023 Taxes,” “Q3 Expenses”).
• Label Clearly: Name files with dates and descriptions (e.g., “Invoice_AcmeCo_Oct2023.pdf”).
• Go Digital: Scan paper documents and use tools like QuickBooks, Xero, or Excel.
• Retention: Follow retention guidelines (e.g., 7 years for tax records, 3+ years for payroll).
• Security: Encrypt sensitive files and restrict access.
• Review Regularly: Update monthly and before tax deadlines.

By systematically collecting and organizing these documents, you’ll streamline bookkeeping, ensure compliance, and simplify tax preparation.

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3 Essential Steps to Qualify

1. Incorporate a Hong Kong Company
   • Registration: Register with the Companies Registry and Inland Revenue Department (IRD).
   • Requirements:
     • At least 1 director (resident or non-resident).
     • Minimum HKD 1 share capital.
     • Local company secretary and Hong Kong office address.
     • Submit Articles of Association, incorporation forms, and obtain a Business Registration Certificate.
   • Tip: Engage a professional service for streamlined compliance, especially for offshore tax exemption guidance.
2. Prove Offshore-Sourced Income
   • Key Criteria:
     • No Hong Kong-based operations: Avoid sales, contracts, employees, offices, or suppliers in Hong Kong.
     • Focus on transaction location: Profits must stem from activities conducted entirely outside Hong Kong.
   • Evidence Required:
     • Contracts/Agreements: Signed and executed outside Hong Kong.
     • Financial Records: Offshore invoices, bank statements (foreign currency), and shipping documents.
     • Operational Proof: Hosted overseas websites, third-party logistics outside Hong Kong, and foreign client/supplier communications.
   • Example: A Hong Kong-registered e-commerce company selling to Europe, sourcing goods from China, and processing payments in EUR via an overseas bank qualifies for exemption.
3. Maintain Robust Documentation
   • Records to Keep:
     • Basic Documents: Certificate of Incorporation, Articles of Association, organizational charts.
     • Business Records: Contracts, email correspondence, outsourcing agreements, and economic substance proof (e.g., overseas office leases).
     • Financial Proof: Audited accounts, transaction trails, and tax filings.
   • Compliance:
     • Submit an Offshore Tax Claim (OTC) with the first Profit Tax Return (due 18 months post-incorporation).
     • Annual audits are mandatory to maintain exemption status (valid for 3–5 years).

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Key Concepts & Requirements

• Territorial Tax System:
  • Hong Kong taxes only locally sourced profits at 16.5%. Offshore income is exempt if proven foreign-sourced.
  • Source Determination: Based on the “operations test”—where profit-generating activities occur, not company registration.
• Offshore Tax Claim (OTC):
  • Submit during the first Profit Tax Return filing.
  • IRD review takes 6+ months; proactive communication is critical.
  • Approval grants tax exemption for 3–5 years, renewable upon re-examination.
• Economic Substance Requirements (FSIE Scheme):
  • Applies to foreign passive income (e.g., dividends, IP royalties, equity gains) for multinational enterprises (MNEs).
  • Non-pure equity entities: Must demonstrate substantial operations in Hong Kong (e.g., qualified employees, local expenditure).
  • Pure equity-holding entities: Simplified requirements but must manage investments locally.
  • Note: FSIE rules expanded in 2024 to include property disposal gains.

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Common Pitfalls & Solutions

• Rejection Reasons:
  • Local activities: Hiring staff, signing contracts, or storing goods in Hong Kong.
  • Insufficient evidence: Missing contracts, unclear transaction trails.
  • Misunderstanding “offshore company” status: Incorporation alone does not guarantee exemption.
• Solutions:
  • Eliminate Hong Kong ties: Centralize operations overseas.
  • Strengthen documentation: Use third-party audits, detailed invoices, and correspondence logs.
  • Consult experts: Tax advisors or incorporation services can navigate complex IRD requirements.

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FAQs & Additional Insights

Q: Who is eligible for offshore tax exemption?
A: Hong Kong-registered companies with zero profit-generating activities in Hong Kong. Unincorporated entities (e.g., sole proprietorships) are ineligible.

Q: What income qualifies as offshore?
A: Profits from sales, services, or IP licensing executed outside Hong Kong (e.g., contracts signed abroad, goods shipped directly from China to Europe).

Q: When to file an Offshore Tax Claim?
A: With the first Profit Tax Return (within 18 months of incorporation). Late submissions delay exemption approval.

Q: Are there other tax incentives?
A: Yes, including:

• R&D tax deductions for innovation-driven businesses.
• Property tax concessions for eligible rental income.
• Industry-specific relief for sectors like finance and shipping.

Q: What if my application is rejected?
A: Review IRD feedback, address gaps (e.g., provide additional contracts), and resubmit. Professional guidance improves success rates.

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Final Tips

• Stay updated: Monitor changes to the FSIE regime (e.g., 2024 amendments).
• Leverage technology: Use digital accounting tools to streamline record-keeping.
• Plan long-term: Ensure business operations align with offshore criteria to avoid future disputes.

Key Resources:

• IRD’s Territorial Source Principle of Taxation.
• IRD’s Profits Tax Exemption Guidelines.
• IRD’s Foreign-Sourced Income Exemption (FSIE) Scheme.

The costs incurred in operating a business and making sales are known as business expenses. The tax commissioner does not offer a comprehensive list of legitimate startup and small-business deductions due to the scope of their mandate. An expense is deductible if it is “ordinary and necessary” to operate a business in your sector.

For this reason, it is well worth the time to arrange your expenses so that your company can make use of all allowable write-offs, develop a sound financial plan, filing the correct amount in yearly net profits taxes, and doesn’t need to sweat an annual audit.

What Are Business Expense Categories?

Business expense categories are organized groups of expenses that a company incurs while operating. The categories act as a framework for allocating spending, which facilitates tracking where money is spent and enables financial performance analysis. Businesses can acquire a better understanding of their spending patterns and make well-informed decisions about budgeting and resource allocation by classifying related expenses together, such as office supplies, marketing expenditures, or employee salaries.

business expense categories:

1.Advertising and marketing

2.Continuing education

3.Credit and collection fees

4.Bank fees

5.Dues and subscriptions

6.Employee benefit

7.Insurance

8.Maintenance and repairs

9.Legal and professional expenses

10.Office expenses and supplies

11.Telephone

12.Utilities

13.Postage and shipping

14.Printing

15.Rent

16.Salaries and other compensation

17.Travel

18.Business meals

19.Business use of your car

20.Moving expenses

21.Depreciation

22.Charitable contributions

23.Mortgage interest

24.Software

25.Books and magazine subscriptions

26.Medical expenses

27.Licenses and permits

28.Manufacturing or raw materials

29.Retirement contributions

30.Real estate taxes

31.Client gifts

Business owners frequently give themselves a salary, which functions in the same manner as a traditional job. The owner pays personal income tax on the salary, which is recorded as an expense in the company’s books.

How much to pay yourself ?

The tax regulation states that entrepreneurs are permitted to give themselves a “reasonable salary.” However, how can one ascertain what is reasonable?

One of the entrepreneurs said, “I advise paying yourself a modest salary, as modest as you can afford.“

Here are two common methods for figuring out your pay:

• Make your pay based on your own spending.
• Distribute profits as a salary.

When can you start paying yourself?

An owner’s salary is frequently the last item on the small business budget when times are tight. Paying yourself, however, becomes possible as your business’s revenue stabilizes.

To decide if you’re ready to begin paying yourself a salary, posing the following three questions to yourself:

• Do I make a consistent cash flow?
• Do my projected earnings remain consistent?
• Is my company profitable?

You can afford to pay yourself if you can say “yes” to all above three questions.

Other payroll obligations for a Hong Kong company

In contrast to the majority of other nations, the employer in Hong Kong does not withhold individual income tax, or salaries tax. Individuals must pay their taxes on their own instead.

As such, employers in Hong Kong are subject to just two administrative requirements.

1. Keeping payroll records

The following details about their employees must be maintained on file by the company/employers:

• Particulars of the employee;
• Type of work: either full- or part-time;
• Working place;
• The total amount of compensation, including non-cash and other fringe benefits;
• Contributions to the Mandatory Provident Fund or its equivalent;
• The employment contract; and
• Duration of employment.

2. Reporting remuneration paid to an employee

Every year, companies will receive the Employer’s Return from the Hong Kong tax department. Even if the company does not hire any employees, the business has not started, or the business has ceased, it still needs to complete the Employer’s Return and file it with the tax department within a month of receiving it.

Useful link: https://www.gov.hk/en/residents/taxes/salaries/

To promote the export of goods, in China there is no VAT applicable to exported goods. When a company sources/buys products from the supplier, the supplier VAT invoice (Fapiao) includes VAT (input VAT). Normally, the input VAT could be deducted from the output VAT, but for exported goods there is no output VAT. Therefore, the government has set up a system for the refund of export-related VAT. Companies can claim back the input VAT paid for export goods through the monthly export VAT refund claim.

Who is eligible for export VAT refund?

Generally, to be eligible for export VAT refund, the export enterprise must:

Which industries are eligible for VAT rebates?

As stipulated in the STA Announcement (2022), the VAT rebate policy has been extended to include all eligible companies in the following six industries:

The tax rebate procedure

In order to enjoy tax rebate policies, exporters should provide Chinese authorities with several documents:

Value Added Tax (VAT) in China

Value-added tax (VAT) is one of the major indirect taxes in China.

VAT rate: The standard VAT rate in China is 13%, but there are also reduced rates of 9%, 6%, and 3%.

Invoicing (VAT Fapiao): All businesses must issue VAT invoices for the sale of taxable goods and services in China. There are two types of invoices: general VAT invoices and special VAT invoices.

General VAT taxpayers refer to enterprises whose accumulated taxable income during a consecutive period of no more than 12 months, or four quarters, exceeds RMB 5 million or those who have a sound accounting system. Multiple VAT rates of 13%, 9%, and 6% apply to general VAT taxpayers. The input VAT can be credited against the output VAT.

Small-scale VAT taxpayers refer to enterprises whose accumulated taxable income during a consecutive period of no more than 12 months, or four quarters, are below RMB 5 million or without a sound accounting system. A 3% levying rate is applied to small-scale VAT taxpayers, but they cannot deduct input VAT from output VAT.

	general VAT taxpayer	small-scale VAT taxpayer
Taxable income	> RMB 5 million	≤ RMB 5 million
Rate	6% to 13%	3%
VAT payable	OUTPUT VAT IN THE CURRENT PERIOD   –   INPUT VAT IN THE CURRENT PERIOD	SALES   x   VAT RATE
Pros + + +	Tax-saving when low profit (low-markup) products; collect and verify special VAT from supplier for VAT deduction, apply VAT tax rebate for export busienss.	Tax-saving for high-profit (high markup) products; Can file VAT tax quarterly; Doesn’t need to collect and verify special VAT invoices for deduction, and the tax calculation method is straightforward; and Can enjoy certain VAT exemption benefits for small transactions.
Cons – – –	as to file tax monthly; Has to collect special VAT invoices and verify them to ensure the input VAT deduction; and increasing tax burden when profit markup on cost higher than critical ratio*, or when the enterprise is unable to collect special VAT invoices for input VAT deduction.	Has to keep in lower annual income (below RMB 5 million), can no enjoy export VAT tax rebate. Most general VAT taxpayers are dedicated to dealing with general VAT taxpayers. Small-scale VAT taxpayer cannot deduct input VAT from output VAT.
*The critical ratio here refers to a ratio of profit markup on cost under which the tax burden for the general taxpayer and small-scale taxpayer is the same. It varies based on the actual tax rates applied.

Chinese VAT rates:

	Tax items	VAT rate
Most goods and some services	Sales and imports of most goods (unless otherwise specified), Labour services, including processing, repair, or assembling services, Tangible moveable property leasing services	13%
Real estate, transportation, postal and agriculture	Agricultural, forestry, animal husbandry products: grains, vegetable oils, fresh milk, medicinal and other plants, agricultural machinery, fertilizer, and pesticide, Tap water, heating, cooling, gas, coal/charcoal products for residential use, Books, newspapers, magazines, audio-visual products, electronic publications, Transportation services, Postal services, Basic telecommunications services, Real estate, construction, transfer of ownership of properties and land use rights, real estate leasing service, Other goods specified by the state council	9%
Services	Financial and insurance services, Modern services: research and development, technical services, information technology services, cultural and creative services, logistics and ancillary services, leasing, consulting, radio, film and television services, etc. Lifestyle services: education, healthcare, travel, entertainment, catering, accommodation, cultural and sports services, other daily lifestyle services, Value-added telecommunications services, Intangible assets, excluding land-use rights, Sales of virtual props for online games	6%
Small-scale taxpayers	For most goods and services.	3% (except certain actual transactions applicable to 5% VAT rate)
Exports	Export of goods and services (except where otherwise stipulated by the State Council)	0%

General VAT taxpayer calculation method:

For general taxpayers, the calculation formula is as follows:

Tax payable = current output VAT – current input VAT – previous surplus input VAT

The output VAT is calculated as follows:

Output VAT = sales volume x tax rate

Where the sales volume is determined as follows:

Sales volume = sales volume including taxes / (1 + Tax rate)

The input VAT can be deducted from the output VAT to arrive at the tax payable. However, not all input VAT can be deducted. In order to deduct any input VAT, the company must receive a special VAT Fapiao where the tax amount is specified, and this amount must be verified in the online system of the tax bureau.

If the current output VAT is higher than the current input VAT, this will result in a VAT tax payable for the company. If the current input VAT is higher than the output VAT, the surplus amount of input VAT can be carried forward to the next period.

Small-scale VAT taxpayer calculation method:

The calculation method for small-scale taxpayer is a simplified calculation, because no able to deduct input VAT.

Tax payable = sales volume x tax rate (3%)

Sales volume = sales volume including taxes / (1 + Tax rate 3%)

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At Colvass Consulting, we take a detailed approach to accounting and bookkeeping services, acting as our client’s reliable partner to ensure the accuracy of their financial records and compliance with local regulations.

Outsourcing your accounting, bookkeeping, and payroll procedures to Colvass Consulting, you receive the collective experience of financial professionals with experience across a vast range of industries and business sizes to help you grow your business.

Is VAT in China Refundable?