China is the calculator's most efficient jurisdiction for small business: an effective 5% instead of 25%. But the Chinese tax system works differently from the familiar VAT-plus-profit-tax model: everything revolves around fapiao, official invoices. Here are the rates, the incentive and the practice.
China business taxes
| Tax | Rate | Comment |
|---|---|---|
| Corporate income tax (EIT) | 25% | Standard rate |
| Small low-profit enterprise | Effective 5% | Profit up to 3M CNY, up to 300 employees, assets up to 50M CNY |
| VAT | 13% / 9% / 6% | 13% goods, 9% transport and real estate, 6% services |
| VAT for small taxpayers | 1-3% | Simplified regime, no input VAT deduction |
| Dividends to non-residents | 10% | Reduced by treaties (5% for 25%+ ownership from Russia) |
| Employee income tax (IIT) | 3-45% | Progressive, withheld by the employer |
Calculate your burden in the tax calculator: the small-business threshold of ~3M CNY is built in.
The key incentive: 5% instead of 25%
Small low-profit enterprise status (小型微利企业) is the main reason to open a mainland company. Conditions: annual profit up to 3M CNY (~350-430K USD), up to 300 employees, assets up to 50M CNY. The tax is computed at 25% but reduced by 20% - effectively 5%. Extended through 2027. For a company with 3M CNY profit, the saving versus the standard rate is 600K CNY a year.
Fapiao: no invoice, no business
Fapiao (发票) is an official invoice issued through the tax system; it is simultaneously the VAT document and the expense proof for counterparties. Chinese business reality: without fapiao an expense is not recognized, "gray" deals are technically impossible, and small taxpayers have a limited fapiao quota. This protects honest players.
Who a China company fits
- Marketplace sellers and 1688 sourcing - 5% rate plus direct yuan without workarounds.
- Manufacturing and processing - cheap assets, incentive zones, provincial subsidies.
- Those hiring staff in China - standard IIT and social contributions, a huge labor market.
Entity forms - in the article on WFOE, JV and RO.
Typical mistakes
- Losing small-enterprise status from one quarter above the limit - 25% for the whole year.
- Ignoring quarterly reporting - fapiao late fees.
- Cashing profit out without a dividend procedure - account freeze and fines.
FAQ
What taxes does a representative office pay?
An RO conducts no commercial activity and pays no profit tax, but its budget and expenses are taxed at rates tied to documented activity.
Can I operate without VAT?
Yes, under the small-taxpayer regime at 1-3% without input VAT deduction. Large counterparties usually prefer the general 13% regime with deductions.
What does running a China company cost?
Accounting from $100-300/month, legal address ~$300/year, mandatory quarterly reporting. Turnkey registration from $2,000 - service page.