China Business Tax
Companies providing services in China are subject to Business Tax, which is a sales tax on the price on the service. Unlike VAT or GST, it is not deductible against onward sales to other businesses, and so cascades/compounds through B2B sales.
Chinese Business Tax operates alongside Chinese VAT, which is charged on goods.
There is a major reform of Chinese VAT underway following the launch of a successful VAT pilot in Shanghai in 2012. The plan is to withdraw Service Tax, and replace it with VAT by the end of 2015.
What services are subject to Service Tax
The following services provided with the People’s Republic of China are subject to Business Tax.
- All Services
- Transportation and communications (see Chinese VAT reform on transport)
- Provision of immovable property and construction
- Entertainment, cultural and sporting events
- Financial services and insurance
Services provided from outside of China to a Chinese-resident company are still subject to Business Tax. It is either the responsibility of the supplier’s agent or the customer to account for the tax.
Chinese Business Tax rates
There are a range of Business Tax rates, as follows:
- General services, including provision of immovable property – 5%
- Transport and communications – Now VAT
- Entertainment – between 5% and 20%
The current registration threshold is Yuan 30,000.
Individuals providing services more than RMB 100 per day are obliged to register.
Exemptions from Business Tax
A number of services are exempt (nil tax) from Business Tax, including:
- Employment contracts
- Repair and replacement services which are liable to Chinese VAT
- Services now including in the Chinese VAT reform program