China Taxes for Foreign Companies: VAT, CIT, WHT and Payroll Tax Basics

A foreign-invested company in China does not manage tax through one annual return. Its tax position develops transaction by transaction: what it sells, which fapiao it issues and receives, how contracts are written, who it employs, and whether money moves across the border. A sound setup connects those events with bookkeeping and recurring filings from the first month.

This guide provides a practical 2026 overview for a China subsidiary or WFOE. Exact treatment depends on the activity, taxpayer status, location, incentives and supporting evidence, so rates alone are not enough to determine the final liability.

TL;DR

• The main operating taxes are value-added tax (VAT), corporate income tax (CIT), payroll individual income tax (IIT), and taxes connected with cross-border payments. Stamp tax, customs duties and VAT-related surcharges may also apply.
• China's VAT Law took effect on January 1, 2026. Common statutory VAT rates are 13%, 9% and 6%, but the correct rate, exemption, zero-rating or simplified treatment depends on the transaction.
• The standard CIT rate is 25%. A reduced rate or incentive is not automatic: the company must qualify, document the conditions and continue to meet them.
• Contracts, fapiao, bank flows, accounting entries and tax returns should describe the same business. A monthly close process is therefore a tax control, not just an accounting routine.

If your China company is preparing to invoice, hire or make payments overseas, ask ChinaBizPro to map its tax and bookkeeping obligations before the first transactions are processed.

Start with the transaction, not a list of rates

Two foreign-owned companies in the same city can have very different tax profiles. A consulting company with local staff, a trading company importing products and a software business receiving group support all create different VAT, customs, payroll and cross-border payment questions.

For each important transaction, finance should be able to answer:

1. Which China legal entity signs the contract and performs the work?
2. What is being supplied, where is it delivered and who is the customer?
3. What fapiao or other tax evidence should be issued or obtained?
4. When does the tax obligation arise, and which filing period includes it?
5. How will the amount appear in the bank account and accounting ledger?
6. Does the transaction involve a related party, an overseas recipient or a special incentive?

This transaction map becomes the basis for the chart of accounts, invoice controls, filing calendar and headquarters reporting pack.

The main taxes at a glance

Tax or charge	Typical trigger	Planning point
VAT	Sale or import of goods, services, intangible assets or immovable property	Confirm taxpayer status, transaction category, tax point, invoice treatment and input VAT eligibility.
Corporate income tax	Taxable profits of the China entity	Reconcile accounting profit to taxable income and retain support for deductions and incentives.
Withholding and cross-border taxes	Dividends, interest, royalties and certain other China-source income paid overseas	Review the income character, domestic rules, treaty eligibility, VAT implications and remittance documents before payment.
Payroll IIT	Salary and other taxable compensation paid to individuals	Coordinate payroll, monthly withholding, employee information and any annual reconciliation.
Social insurance and housing fund	Employment in China, subject to local implementation	Budget employer and employee contributions and align registrations with payroll.
Stamp tax	Specified taxable instruments and transactions	Identify covered contracts and records rather than applying stamp tax to every document.
Customs duties and import VAT	Import of goods	Confirm classification, customs value, origin and import documentation.
VAT-related taxes and surcharges	VAT or consumption tax paid	Include urban maintenance and construction tax and education surcharges where applicable.

VAT under the 2026 framework

China's VAT Law became effective on January 1, 2026, together with the supporting implementation framework. The statutory rates most businesses encounter are 13%, 9% and 6%. A 3% levy rate is relevant to simplified calculation, while qualifying cross-border transactions may be zero-rated or exempt. Temporary preferential policies can change the effective burden, so they should be checked for the filing period rather than built permanently into a financial model.

The headline rate does not answer the full VAT question. Finance must determine the nature of the supply, place of taxation, taxpayer status and whether the company uses the general or simplified calculation method. A general VAT taxpayer generally calculates output VAT on taxable sales and deducts eligible input VAT supported by valid evidence. Input VAT is not creditable merely because a supplier issued an invoice; the purchase, use, invoice type and applicable restrictions still matter.

Fapiao controls are part of that analysis. The customer name, transaction description, amount and tax treatment should match the contract and actual delivery. Issuing an invoice too early can affect reporting and cash flow, while issuing it too late may delay customer payment. The detailed China VAT and fapiao guide explains rates, input credits and filing controls.

Corporate income tax: profit is only the starting point

The standard enterprise income tax rate is 25%. Taxable income starts with the accounting result but is adjusted under tax rules. Some accounting expenses may be non-deductible or limited, and some timing differences reverse in later periods.

Common review areas include:

• Whether the expense is genuine, reasonable and connected with earning business income.
• Whether contracts, fapiao, payment records and delivery evidence support the deduction.
• Limits or special rules for entertainment, advertising, donations, employee welfare and similar categories.
• Depreciation, amortization, asset disposals and provisions.
• Related-party pricing and the benefit received from overseas management or service charges.
• Loss carryforwards and whether the company continues to satisfy any incentive conditions.

Qualifying enterprises may access reduced rates or other incentives, such as treatment available to eligible high and new technology enterprises or qualifying small low-profit enterprises. A registration label or business-scope phrase does not by itself secure an incentive. Eligibility, supporting records and continuing conditions should be reviewed before the forecast assumes a lower rate.

CIT is generally prepaid during the year and followed by an annual reconciliation after year-end. This makes monthly bookkeeping quality important: waiting until the annual filing to identify missing contracts or invalid expense evidence leaves little time to correct the underlying process.

Cross-border payments: classify before remitting

When a China subsidiary pays an overseas group company or shareholder, the tax analysis should be completed before the bank remittance. Dividends, interest, royalties, service fees and reimbursements are not interchangeable labels. Each has different questions about deductibility, withholding income tax, VAT, treaty relief, transfer pricing and foreign-exchange evidence.

For non-resident enterprises, China-source dividends, interest and royalties are commonly subject to a 10% withholding enterprise income tax rate under domestic rules, unless a treaty or another provision changes the result. Treaty relief is not automatic. The recipient normally needs to satisfy residence, beneficial-owner and documentation requirements relevant to the claimed benefit.

Service fees require a different analysis. Finance should examine where services are performed, whether the overseas provider creates a taxable presence, what benefit the China company receives and whether the charge is arm's length. Calling a payment a reimbursement does not remove tax if the underlying arrangement is actually a service or royalty.

Dividends can generally be considered only after distributable profits and corporate formalities are addressed. The tax filing, audit or financial records, shareholder resolution and bank documentation should be planned together rather than assembled after headquarters requests an urgent transfer.

Payroll tax and employment costs

The employer is responsible for withholding individual income tax from taxable salary and reporting it through the payroll cycle. IIT uses progressive rules and depends on the employee's residence status, income type, deductions and cumulative calculations. Expatriate benefits and treaty positions should be reviewed for the individual rather than copied from another employee's package.

Payroll also connects with social insurance and housing fund obligations, which are implemented locally. The employment contract, employing entity, work location, payroll records, bank payment and tax declaration should align. Splitting compensation between China and overseas payroll does not by itself remove China reporting obligations.

Other taxes that are easy to overlook

Stamp tax applies to specified taxable instruments and transactions, including certain contracts and business records. It should be mapped to contract types rather than added indiscriminately to every payment.

An importer should model customs duties and import VAT using the correct tariff classification, customs value and origin. Product descriptions used by procurement, customs and the accounting team should be consistent. Consumption tax can apply to specified goods and requires a separate product-level check.

Urban maintenance and construction tax and education surcharges are linked to VAT and consumption tax. They are often smaller than VAT or CIT but still belong in pricing, accruals and return reconciliations.

A workable monthly compliance calendar

China filing periods and deadlines vary by tax, taxpayer and tax-authority assignment. A practical monthly process should therefore work from the company's actual electronic tax account rather than from a generic calendar.

Stage	Core work
Before month-end	Collect contracts, supplier invoices, employee claims and billing instructions; resolve unusual transactions before issuing fapiao.
Close	Reconcile bank accounts, accounts receivable and payable, payroll, fixed assets and intercompany balances.
Tax review	Match VAT output and input, review deductible evidence, calculate payroll IIT and identify cross-border items.
Filing and payment	Submit returns and arrange sufficient cash before the assigned deadlines.
After filing	Reconcile filed figures to the ledger, archive final returns and track corrections or missing documents.

The post-registration compliance checklist covers the operational registrations that should be connected to this calendar.

Tax and cash flow should be planned together

VAT may become reportable before a customer has paid, while input VAT may be unavailable because the invoice or eligibility requirement is not yet satisfied. CIT prepayments, payroll taxes and social contributions also create cash outflows at fixed points. A company can therefore be profitable on paper and still face a filing-period cash shortage.

Forecast tax by transaction and due date, not only as a percentage of annual profit. Track fapiao already issued but not collected, imports awaiting documents, supplier invoices not yet received and cross-border payments under review. These items explain much of the difference between the management forecast and tax cash requirements.

First-90-day setup checklist

• Confirm VAT taxpayer status, filing periods and access to the electronic tax system.
• Define who may request, approve and issue outgoing fapiao.
• Set rules for supplier onboarding, incoming invoices and employee reimbursements.
• Build a chart of accounts that separates domestic, cross-border and related-party transactions.
• Establish payroll, IIT, social insurance and housing fund responsibilities before the first salary run.
• List recurring contracts that may attract stamp tax or cross-border tax review.
• Agree a monthly document deadline with the overseas headquarters.
• Create an approval path for unusual transactions before contracts are signed or cash moves.

Common mistakes

• Assuming a company with no revenue has no filing or bookkeeping obligations.
• Letting sales, procurement and payroll use transaction descriptions that do not match the accounts and returns.
• Claiming an incentive in a forecast without testing eligibility and evidence.
• Paying an overseas related party before reviewing tax, transfer pricing and bank requirements.
• Treating every supplier fapiao as deductible and creditable.
• Waiting for year-end to reconcile VAT, payroll and intercompany balances.

FAQ

Does a China company have to file tax before it earns revenue?

Usually, yes. A newly established company may have nil or expense-only returns, payroll matters and bookkeeping obligations before its first sale. Its exact filing profile should be confirmed in the tax system.

Do foreign-invested and domestic companies use different tax rates?

Foreign-invested companies generally operate under the same main tax laws as domestic companies. Differences arise from business activity, taxpayer status, location, incentives and cross-border transactions, not simply from foreign ownership.

Can headquarters keep the books outside China?

Headquarters can maintain management reporting, but the China entity still needs compliant local accounting records, supporting documents and tax filings. The two systems should be reconciled rather than treated as substitutes.

When should a tax adviser review a contract?

Before signing when the contract involves cross-border payments, unusual VAT treatment, related parties, a new revenue model or a material incentive. Review after payment often limits the available options.

Official references

• State Council: VAT Law effective January 1, 2026
• State Council: VAT implementation regulation update
• Foreign Investment Guide of the People's Republic of China 2024