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In the depth of entrepreneurship
Tax Knowledge for Starups
Foreword
Tax knowledge is essential for the proper management of a company. Even before a business officially begins its operations, the company already needs to deal with issues such as tax declaration and payment, for transactions including the leasing or purchase of an office. If handled improperly, these issues may result in legal disputes. This section will cover some general tax knowledge, including the three most common taxes in China. Some frequently asked tax-related questions will also be addressed, with a list of well-known financial outsourcing companies in Shenzhen provided for your reference.
Reading Guide
• Three common types of taxes
• Frequently Asked Questions on taxes
• List of well-known financia outsourcing companies
Three common types of taxes
The three most common taxes in China are: Corporate income tax, personal income tax and value-added tax.
| Tax item | Tax rates | Important details |
| Corporate income tax | 5%-25% | Basic tax rate: 25% Small low-profit enterprises Effective tax rate for annual taxable income of RMB 0 to 1 million, : 5% Effective tax rate for annual taxable income of RMB 1 to 3 million: 10% Effective tax rate for annual taxable income of over RMB 3 million: 25% |
| Personal income tax | 3%-45% | Personal income tax is calculated at a progressive tax rate of 3% - 45% over the individual's combined income (wages, salary, remuneration for labor, author's remuneration, franchise royalties, etc.) Note: The amount of personal income to be paid is based on the annual income of the taxable year deducted by RMB 60,000 (RMB 5000 for each month) and other special deductions, additional special deductions, and deductions prescribed by law. |
| Value-added tax | 3%-13% | Basic VAT rate for small-scale taxpayers: 3% (Basic VAT rate for small-scale taxpayers before December 31, 2020: 1%). Basic VAT rate for general taxpayers: Common tax rates: Sale or import of goods tax and processing and repair services tax (13%) Value-added telecommunications, financial and daily necessity services (6%) Special tax rate:The deduction rate for purchases of agricultural products is 9% VAT is exempt for small-scale taxpayers with monthly sales lower than RMB 100,000. |
Frequently Asked Questions on taxes
Having understood the common types of tax and tax rates, William now consults professional start-up consultant EG from Start-Up Guide on the kinds of tax issues that a start-up may encounter.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
List of well-known financia outsourcing companies
After listening to the explanations of professional start-up consultant EG, William now has an overall understanding of how to deal with basic tax issues that may occur during the establishment of a company. However, foreigners may still struggle with issues such as the language barrier and difficulties in understanding local policies while operating their start-ups in China. In such cases, hiring a financial and tax services outsourcing company will be an easier solution to these problems. The accounting personnel at financial and tax outsourcing companies are generally well-qualified and professional. Client companies are also not required to pay for insurance, accommodation, medical or other benefits for these accounting personnel.
Below is a suggested list of well-known financial and tax services outsourcing companies for your reference.
Even though agencies can help save time for entrepreneurs and enhance their business models and products, some entrepreneurs from Shenzhen have shared that there are specific things to bear in mind when engaging a financial and tax services agency:
3. Question recommendations you find online
4. Get recommendations from the start-up community
Below is a suggested list of well-known financial and tax services outsourcing companies for your reference.
| Name | Address | Website |
| PricewaterhouseCoopers Zhong Tian LLP Shenzhen Office | 34th Floor, Tower A, Kingkey 100, No. 5016 Shennan East Road, Luohu District, Shenzhen | https://www.pwccn.com/en.html |
| Deloitte Touche Tohmatsu Certified Public Accountants LLP ShenzhenOffice | 13th Floor, China Resources Building,No. 5016 Shennan East Road, Shenzhen | https://www2.deloitte.com/cn/en.html |
| Ernst & Young Hua Ming LLP Shenzhen Office | 21st Floor, China Resources Building, No. 5001 Shennan East Road, Shenzhen | https://www.ey.com/en_gl |
| KPMG Huazhen (Special General Partnership) Shenzhen Office | 15th Floor, China Resources Building, No. 5001 Shennan East Road, Shenzhen | https://home.kpmg/xx/en/home.html |
| BDO China Shu Lun Pan CPAs LLP Shenzhen Office | 16th Floor, Building A, Shenzhen Investment International Business Center, No. 1061, Xiangmei Road, Futian District, Shenzhen | http://www.bdo.com.cn/en-gb/microsites/english/home |
Even though agencies can help save time for entrepreneurs and enhance their business models and products, some entrepreneurs from Shenzhen have shared that there are specific things to bear in mind when engaging a financial and tax services agency:
1. Hiring an agency doesn't mean you don't need to check their work
In terms of tax declaration, you should not simply accept the advice of the agent, but should instead look at past financial reports prepared by them, and see if they fit your requirements and if their presentation format is easy to understand. For foreigners doing business in China, a tiny financial error can potentially lead to huge losses.
Marek Koys
Founder of Impact Hub
Founder of Impact Hub
Nationality：Czech Republic
Number of years in Shenzhen：6 years
Company type：WOFE
Number of years in Shenzhen：6 years
Company type：WOFE
"There is always high possibility that something goes wrong. One of the challenges as an Entrepreneur who is building a new company, you might easily overlook small things in accounting. You can say: "Never mind, the accountant will handle it". But I think is important that you sit down and really go through the numbers regularly. Even if you paying an accountant, you should routinely double check your numbers, and you should be always clear about that. Don't forget, You are an alien in a foreigner country, and this kind of mistakes can cause you great damage."
—— Marek Koys
2. Personnel fluctuations
It may be difficult to guarantee consistent quality of service as situations may arise where an individual employee at the agency is dealing with multiple clients, there is a shortage of supporting team members, or no one is available to take over the work when colleagues are on leave or during special circumstances.
Brent Deverman
CEO of ShenzhenParty
CEO of ShenzhenParty
Nationality：The United States
Number of years in Shenzhen：18 years
Company type：WOFE
Duration of company establishment：12 year
Number of years in Shenzhen：18 years
Company type：WOFE
Duration of company establishment：12 year
"When choosing an agency, find out about the number of clients they have, their competency level, whether you will be served by a single person or a team, and the availability of backup personnel to cover for employees on leave."
—— Brent Deverman
Marine Mallinson
Founder & CEO of MedAnt China
Founder & CEO of MedAnt China
Nationality：France
Number of years in Shenzhen：2 years
Company type：WOFE
Duration of company establishment：2 year
Number of years in Shenzhen：2 years
Company type：WOFE
Duration of company establishment：2 year
"When the company reached a certain stage in its development, I decided to hire full-time employees to manage the finances and legal work of the company, to reduce the risk of personnel fluctuations."
— Marine Mallinson
3. Question recommendations you find online
John Rood
Co-founder of Somos Digital
Co-founder of Somos Digital
Nationality：The United States
Number of years in Shenzhen：5 years
Company type：WOFE
Duration of company establishment：2 year
Number of years in Shenzhen：5 years
Company type：WOFE
Duration of company establishment：2 year
"In your search for agencies online, you should not simply stick to companies that are ranked the highest, because they may just simply be very good at SEO (Search engine optimization). You should dig deeper and find out if they are a good fit for your company, and whether they would match in terms of capabilities. Get a third-party point of view if necessary, or ask for the opinions of people you trust."
— John Rood
4. Get recommendations from the start-up community
A tried-and-tested method of selecting an agency is through recommendations from the entrepreneurs’community. If an agency has earned the approval of other entrepreneurs, it is more likely to be a reliable one.
Brian Hirsh
Founder of BrightWood, Smart Lighting Start-up
Founder of BrightWood, Smart Lighting Start-up
Nationality：The United States
Number of years in Shenzhen：1.5 years
Company type：WOFE
Duration of company establishment：4 months
Number of years in Shenzhen：1.5 years
Company type：WOFE
Duration of company establishment：4 months
"My strategy was if this person was recommended from three entrepreneur friends who I trust, my time is better spent following this part of the business."
— Brian Hirsh
Tax Knowledge for Starups
Foreword
Tax knowledge is essential for the proper management of a company. Even before a business officially begins its operations, the company already needs to deal with issues such as tax declaration and payment, for transactions including the leasing or purchase of an office. If handled improperly, these issues may result in legal disputes. This section will cover some general tax knowledge, including the three most common taxes in China. Some frequently asked tax-related questions will also be addressed, with a list of well-known financial outsourcing companies in Shenzhen provided for your reference.
Reading Guide
• Three common types of taxes
• Frequently Asked Questions on taxes
• List of well-known financia outsourcing companies
Three common types of taxes
The three most common taxes in China are: Corporate income tax, personal income tax and value-added tax.
| Tax item | Tax rates | Important details |
| Corporate income tax | 5%-25% | Basic tax rate: 25% Small low-profit enterprises Effective tax rate for annual taxable income of RMB 0 to 1 million, : 5% Effective tax rate for annual taxable income of RMB 1 to 3 million: 10% Effective tax rate for annual taxable income of over RMB 3 million: 25% |
| Personal income tax | 3%-45% | Personal income tax is calculated at a progressive tax rate of 3% - 45% over the individual's combined income (wages, salary, remuneration for labor, author's remuneration, franchise royalties, etc.) Note: The amount of personal income to be paid is based on the annual income of the taxable year deducted by RMB 60,000 (RMB 5000 for each month) and other special deductions, additional special deductions, and deductions prescribed by law. |
| Value-added tax | 3%-13% | Basic VAT rate for small-scale taxpayers: 3% (Basic VAT rate for small-scale taxpayers before December 31, 2020: 1%). Basic VAT rate for general taxpayers: Common tax rates: Sale or import of goods tax and processing and repair services tax (13%) Value-added telecommunications, financial and daily necessity services (6%) Special tax rate:The deduction rate for purchases of agricultural products is 9% VAT is exempt for small-scale taxpayers with monthly sales lower than RMB 100,000. |
Frequently Asked Questions on taxes
Having understood the common types of tax and tax rates, William now consults professional start-up consultant EG from Start-Up Guide on the kinds of tax issues that a start-up may encounter.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
When does a company need to start declaring and paying taxes?
The taxable year is from January 1 to December 31 of a calendar year. The tax for the previous month needs to be declared to the taxation bureau by the 15th of the current month. In the event of national public holidays, this date may sometimes be delayed by a few days, depending on the tax submission date published by the State Taxation Administration.
List of well-known financia outsourcing companies
After listening to the explanations of professional start-up consultant EG, William now has an overall understanding of how to deal with basic tax issues that may occur during the establishment of a company. However, foreigners may still struggle with issues such as the language barrier and difficulties in understanding local policies while operating their start-ups in China. In such cases, hiring a financial and tax services outsourcing company will be an easier solution to these problems. The accounting personnel at financial and tax outsourcing companies are generally well-qualified and professional. Client companies are also not required to pay for insurance, accommodation, medical or other benefits for these accounting personnel.
Below is a suggested list of well-known financial and tax services outsourcing companies for your reference.
Even though agencies can help save time for entrepreneurs and enhance their business models and products, some entrepreneurs from Shenzhen have shared that there are specific things to bear in mind when engaging a financial and tax services agency:
3. Question recommendations you find online
4. Get recommendations from the start-up community
Below is a suggested list of well-known financial and tax services outsourcing companies for your reference.
| Name | Address | Website |
| PricewaterhouseCoopers Zhong Tian LLP Shenzhen Office | 34th Floor, Tower A, Kingkey 100, No. 5016 Shennan East Road, Luohu District, Shenzhen | https://www.pwccn.com/en.html |
| Deloitte Touche Tohmatsu Certified Public Accountants LLP ShenzhenOffice | 13th Floor, China Resources Building,No. 5016 Shennan East Road, Shenzhen | https://www2.deloitte.com/cn/en.html |
| Ernst & Young Hua Ming LLP Shenzhen Office | 21st Floor, China Resources Building, No. 5001 Shennan East Road, Shenzhen | https://www.ey.com/en_gl |
| KPMG Huazhen (Special General Partnership) Shenzhen Office | 15th Floor, China Resources Building, No. 5001 Shennan East Road, Shenzhen | https://home.kpmg/xx/en/home.html |
| BDO China Shu Lun Pan CPAs LLP Shenzhen Office | 16th Floor, Building A, Shenzhen Investment International Business Center, No. 1061, Xiangmei Road, Futian District, Shenzhen | http://www.bdo.com.cn/en-gb/microsites/english/home |
Even though agencies can help save time for entrepreneurs and enhance their business models and products, some entrepreneurs from Shenzhen have shared that there are specific things to bear in mind when engaging a financial and tax services agency:
1. Hiring an agency doesn't mean you don't need to check their work
In terms of tax declaration, you should not simply accept the advice of the agent, but should instead look at past financial reports prepared by them, and see if they fit your requirements and if their presentation format is easy to understand. For foreigners doing business in China, a tiny financial error can potentially lead to huge losses.
Marek Koys
Founder of Impact Hub
Founder of Impact Hub
Nationality：Czech Republic
Number of years in Shenzhen：6 years
Company type：WOFE
Number of years in Shenzhen：6 years
Company type：WOFE
"There is always high possibility that something goes wrong. One of the challenges as an Entrepreneur who is building a new company, you might easily overlook small things in accounting. You can say: "Never mind, the accountant will handle it". But I think is important that you sit down and really go through the numbers regularly. Even if you paying an accountant, you should routinely double check your numbers, and you should be always clear about that. Don't forget, You are an alien in a foreigner country, and this kind of mistakes can cause you great damage."
—— Marek Koys
2. Personnel fluctuations
It may be difficult to guarantee consistent quality of service as situations may arise where an individual employee at the agency is dealing with multiple clients, there is a shortage of supporting team members, or no one is available to take over the work when colleagues are on leave or during special circumstances.
Brent Deverman
CEO of ShenzhenParty
CEO of ShenzhenParty
Nationality：The United States
Number of years in Shenzhen：18 years
Company type：WOFE
Duration of company establishment：12 year
Number of years in Shenzhen：18 years
Company type：WOFE
Duration of company establishment：12 year
"When choosing an agency, find out about the number of clients they have, their competency level, whether you will be served by a single person or a team, and the availability of backup personnel to cover for employees on leave."
—— Brent Deverman
Marine Mallinson
Founder & CEO of MedAnt China
Founder & CEO of MedAnt China
Nationality：France
Number of years in Shenzhen：2 years
Company type：WOFE
Duration of company establishment：2 year
Number of years in Shenzhen：2 years
Company type：WOFE
Duration of company establishment：2 year
"When the company reached a certain stage in its development, I decided to hire full-time employees to manage the finances and legal work of the company, to reduce the risk of personnel fluctuations."
— Marine Mallinson
3. Question recommendations you find online
John Rood
Co-founder of Somos Digital
Co-founder of Somos Digital
Nationality：The United States
Number of years in Shenzhen：5 years
Company type：WOFE
Duration of company establishment：2 year
Number of years in Shenzhen：5 years
Company type：WOFE
Duration of company establishment：2 year
"In your search for agencies online, you should not simply stick to companies that are ranked the highest, because they may just simply be very good at SEO (Search engine optimization). You should dig deeper and find out if they are a good fit for your company, and whether they would match in terms of capabilities. Get a third-party point of view if necessary, or ask for the opinions of people you trust."
— John Rood
4. Get recommendations from the start-up community
A tried-and-tested method of selecting an agency is through recommendations from the entrepreneurs’community. If an agency has earned the approval of other entrepreneurs, it is more likely to be a reliable one.
Brian Hirsh
Founder of BrightWood, Smart Lighting Start-up
Founder of BrightWood, Smart Lighting Start-up
Nationality：The United States
Number of years in Shenzhen：1.5 years
Company type：WOFE
Duration of company establishment：4 months
Number of years in Shenzhen：1.5 years
Company type：WOFE
Duration of company establishment：4 months
"My strategy was if this person was recommended from three entrepreneur friends who I trust, my time is better spent following this part of the business."
— Brian Hirsh
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