By Victor Tu

Some foreign investors are curious that what taxes they have to pay if they run a trading company in Ningbo for importation and sales in China. Today we will discuss this issue.

1.    Customs Duty

If this trading company imports some products and paying for CIF USD 1,000.00 and the Duty rate is 10%, it has to pay Customs Duty RMB 620 (USD1,000*6.2*10%)

2.    VAT

Meanwhile, after being taxed Customs Duty, the company has to pay importation VAT, amounting RMB1, 160 [USD1, 000*6.2+RMB620)*17%]. At this moment, what you paid for VAT is called input VAT.

After importation, the company sells these products to Chinese Consumers for RMB 11,700(inclusive of VAT), at this time, you have calculate the output VAT, amounting RMB1, 700 (RMB11, 700/(1+17%)*17%) .

Following the VAT rules, the company’s VAT payable= output VAT-input VAT=RMB1, 700-RMB1, 160= RMB 540.

In this case,

Sales   11,700/ (1+17%)                 RMB 10,000

Cost of goods sold 6200+620                (6,820)

Gross Profit                                             3,180

The cash flow=Revived from Customer-paid to overseas vendor-Customs Duty-VAT paid at importation-VAT paid after sales

=11,700-6,200-620-1160-540=RMB3, 180=Gross profit

Technically speaking, VAT paid at importation will be covered by sales, the actual VAT is borne by the final customers or consumers. The VAT issue, it is only a no gain no loss game. You will not lose or gain anything from VAT as a trading company.

Note: if the trading company is doing business for exportation, I have already written other articles in previous issues of Ningbo Focus.

3.    Surcharges of VAT

There are three surcharges of VAT

l  National Education fee  3% of VAT paid

l  Local Education Fee    2% of VAT paid

l  Urban Construction fee  7% of VAT paid.  *in suburban area , it is 5%.

So in above case, the company has to pay the surcharges for RMB 64.80 [RMB540 *12%]

4.    Social insurances and housing fund

In China, you have to pay the social insurances and housing fund. It is what we call “five insurances and one fund”. Which is based on an employee’s monthly salary. for example, the company hires an employee and paying her or him RMB5,000 per month. We will calculate the costs as follows:

Pension insurance                         14%

Medical insurance                         11%

Unemployment insurance             1.5%

Work related injure insurance      1.2%

Maternity insurance                          0.7%

Housing Fund                                  8%

     Total                                     36.4%

In this case, your actual employment costs will be RMB 6,820 (RMB5000+RMB1820)

5.    Stamp Duty

According to the China Stamp Duty rule, there are 13 situation for paying stamp duty, i.e. loan contract, sales and purchase contract, processing contract, property lease, shares transfer, etc. in practice, the tax bureau could not supervise the all situation, so they only charge it based on your revenue by certain percentage. For instance, your sales in this month is RMB 10,000, you will only have to RMB1.00 (20% discount plus 0.05%). This is lower than expected.

6.    Water Reservation Fund

Which is based on your revenue by 0.1%, if your sales is RMB10,000 and you only pay RMB 10.00.

7.    Fund of the Disable

Which is taxed by how many employees you have in the company, for example, you hire three staff in your company, you have to pay the fund of Disable RMB 42 per month (3 staff* RMB14 per month).

8.    Property Duty

If the company buys an office in Ningbo , amounting RMB1,000,000, each year, you will have to pay Property Duty for RMB 8400 per year [1000000*(1-30%)*1.2%].

9.    Land use tax

It depends on your how big your purchased office is. For example, the office you bought is 100 square meters, you might pay RMB500 per year. (100*5/SM).  The unit price will vary from location to location. 

10. Individual Income tax

It is more complicated and I will explain more detail in another article, the company doesn’t bear the employees’ individual income tax, but you have the responsibility to withhold the taxes for the employees.

To sum up, you just have to keep in mind with these taxes when you run your business in Ningbo. If you file your tax returns lately or commit fraud, the company has to pay not only taxes itself, but also interests and penalties, in worse situation, the legal representative could be sued for tax evasion as a criminal.   

Keywords: Ningbo accounting, Ningbo Auditor, Ningbo accountants, Ningbo CPA

关键词：宁波会计，宁波审计，宁波会计师，宁波涉外会计，宁波注册会计师

Victor & Truman，CPAs  宁波纬度会计师事务所（普通合伙）