Eric Lau CPA & Co.
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What are the differences between tax filing in China and Hong Kong? In terms of tax treatment, Chinese companies must file monthly value-added and other tax returns. They need to pay 25% corporate income tax on any profits made, and 3% to 13% value-added tax. Hong Kong has no value-added tax and the Companies need to profits tax of 16.5% on any profits made. The Hong Kong companies are not subjected to any tax if they incur loss.

Why were internet celebrities Xue Li and Lin Shanshan fined for tax evasion?
Xue Li and Lin Shanshan evaded personal income tax by setting up a sole proprietorship and fictitious businesses to convert personal wages, salaries and labor remuneration into sole proprietorship's business turnover.

What is the Jinshui Fourth Phase(金税四期)?
The Jinshui Fourth phase is an upgrade and improvement tax project based on the Jinshui Third phase. It is not a new tax system. It adds some information from non-tax and other regulatory departments, and at the same time upgrades the original analysis and comparison methods and background monitoring methods from the traditional Internet information system to the artificial intelligence and cloud computation application. The Jinshui Fourth phase will affect everyone’s tax position, including monitoring private individual bank transactions and introducing anti-tax avoidance provisions for high-net-worth individuals.

What are the penalties for accepting false and fictitious sales invoice?
If the recipient uses the invoices falsely issued by others to declare tax deductions to the tax authorities and evade taxes, the tax shall be recovered in accordance with the Tax Collection and Administration Law and other relevant regulations, and corresponding fines shall be imposed. In order to defraud taxes, the act of falsely issuing special value-added tax invoices or other invoices used to defraud export tax rebates and tax deductions violates the tax system. Tax evasion even causes a large loss of tax revenue and is subjected to fines and imprisonment. 

Why choose outsourcing accounting firms?
All companies must keep proper financial records and prepare annual financial statements and management accounts. It has become a trend for SME companies to outsource accounting services to external experts. Outsourcing accounting work to accountants can save you the expense of hiring a full-time accounting staff, and provide you with professional, efficient and high-quality accounting services, and ensure that your accounts are in compliance with accounting standards.

What is Company Setup Tax Planning?
During the company setup, the business owners must make several decisions that affect the future tax payables of the business.

Taxpayer Status
Applying for small-scale VAT taxpayer status allows businesses to apply a flat 3% VAT rate for both products and services – as opposed to the standard 6% (servicing) and 13% (product trading) paid by General VAT Taxpayers. However, small-scale VAT taxpayers are not allowed to offset their VAT payable using input VAT deductions. Instead, they pay a flat 3% VAT on gross sales revenue.
 
Determining which taxpayer status is more efficient varies case by case depending on several factors including the amount of estimated input expenses, whom your suppliers are, the expected turnover of the company, and more. We suggest working with a professional tax accountant to determine the most efficient taxpayer status based on individual circumstances.
 
Business Scope
Tax rates vary between products (9% – 13%) and services (6%). Separating products and services allows businesses to apply a lower tax rate for revenue generated through services. Generally, both product and service business scopes can be applied for under a single business license. However, in some cases where it is difficult to separate the service from the product – such as certain hardware and software applications – the company may be required to register two separate companies to effectively apply a lower tax rate.
 
Additionally, in order to qualify for various preferential policies and incentives, businesses must meet a specified business scope. The business scope cannot be too broad, or it might affect their ability to apply for preferential treatment and incentives.
 
Preferential policies and incentives 
There are various preferential policies and incentives provided in China including – reduced tax rates, special “super deductions”, tax holidays, reduced interest rates, cash incentives, and other fiscal stimuli. Preferential policies follow the current economic agenda outlined in the various “Encouraged Catalogues” and can change frequently. Generally, they are awarded based on the following factors:
 
Business activities – such as infrastructure investment, high-new technology enterprises (HNTEs), and
other industry sectors which meet the economic and social development needs of each region.
 
Location – such as Free Trade Zones (FTZ), High-Tech parks, Belt and Road Initiative (BRI) areas,
Guangdong-Hong Kong-Macao Greater Bay Area (GBA), Hainan Free Trade Port and other areas outlined as “in-need” for investments (Example: China’s Western Regions).
 
The first stage of applying for preferential tax treatment and incentives requires you to engage with an advisor to determine whether your business meets the qualifications set out by local jurisdictions. In some cases, the criteria are clearly laid out and other times this involves liaising with the relevant regional authorities over the permissible business activities and incentives.
 
Micro- and Small Sized Enterprises
Micro- and Small Sized Enterprises (MSEs) are defined as “having a relatively small size in personnel and scope of business”. The standard for classification of MSEs is based on the industry, operating
income, total assets, and the number of employees belonging to a company. Over 95% of all Chinese businesses classify as MSEs.
 
Various preferential tax policies are targeted to China MSEs and effectively reducing the tax payable up to prescribed limits, including; 
 
1. The first RMB 1 million of taxable income will be taxed at a preferential CIT rate of 20% for 25 percent of their income, with the remaining 75 percent tax-free (effective tax rate 5%).
2. Taxable income for the next RMB 1 million to RMB 3 million will be taxed at a preferential CIT rate of 20% for 50 percent of their income, with the remaining 50 percent tax-free (effective tax rate of 10%). Till the end of year 2027, there is extra 50% tax exemption (effective tax rate 5%).
3. Taxable income above RMB 3 million will be taxed at CIT rate of 25%. 
4. Small-scale VAT taxpayers with monthly revenue of less than RMB 100k will be exempted from remitting VAT on certain items. If monthly revenue is above RMB100K (monthly filing taxpayer) or quarterly revenue is above RMB 300K (quarterly filing taxpayer), all revenue of small-scale VAT payer will be taxed at VAT rate of 1% till the end of year 2027.