Enterprise income tax is levied on the taxable income of resident enterprises — companies incorporated in China, and foreign companies whose place of effective management is in China. The headline rate has been 25% for more than a decade. What changes, almost every year, is the preferential layer stacked on top of it. The layer that matters most to small foreign-invested entities is the small low-profit regime, which produces an effective rate of 5%.
The rate table
| Rate | Applies to |
|---|---|
| 25% | Standard rate for resident enterprises. |
| 20% (effective 5%) | Small low-profit enterprises meeting all thresholds, through 31 December 2027. |
| 15% | High-tech enterprises certified as encouraged, plus a short list of other categories. |
| 10% | Withholding on China-sourced income of non-resident enterprises without a permanent establishment (20% statutory, reduced to 10%; treaties may reduce further). |
Small low-profit enterprises: how 25% becomes 5%
The mechanism is two steps, not one rate. Qualifying income is first reduced to 25% of its amount, then taxed at 20%, giving 25% × 20% = 5% effective. Four conditions must hold for the year:
- Annual taxable income not exceeding CNY 3 million;
- Fewer than 300 employees;
- Total assets not exceeding CNY 50 million;
- The enterprise must not be in a restricted or prohibited industry.
The relief runs from 1 January 2023 to 31 December 2027. Qualification is determined on the annual filing result, not on how the year looked in March — a strong first three quarters followed by a weak December changes the answer, and the employee and asset tests are measured on annual averages.
Worked example: a small low-profit company
Taxable income CNY 2,800,000, 40 employees, total assets CNY 12 million:
- Reduced base: 2,800,000 × 25% = CNY 700,000
- Tax at 20%: CNY 140,000 — an effective 5% of taxable income
Now assume taxable income of CNY 3,100,000 instead. The enterprise no longer qualifies at all, and the whole amount is taxed at 25% = CNY 775,000. The CNY 300,000 of extra profit costs CNY 635,000 in tax. The threshold is a cliff, not a slope, which is why year-end planning around it is a real planning question rather than a technicality.
Worked example: the standard rate
Taxable income CNY 10,000,000 at 25% = CNY 2,500,000. The same company with recognised high-tech status at 15% would pay CNY 1,500,000 — a difference that turns entirely on holding a valid certificate.
Getting from accounting profit to taxable income
Taxable income is accounting profit adjusted for items the tax law treats differently. The recurring adjustments for foreign-invested companies:
| Item | Deduction limit |
|---|---|
| Business entertainment | 60% of the amount incurred, capped at 0.5% of sales revenue — whichever is lower |
| Advertising and promotion | 15% of sales revenue for most industries, with carryforward |
| Employee welfare | 14% of total wages |
| Union fees | 2% of total wages |
| Employee education | 8% of total wages, with carryforward |
| Fines, penalties and late-payment surcharges | Not deductible |
| Dividends from resident enterprises | Exempt |
Tax losses can be carried forward five years, or ten for high-tech enterprises, and only if the loss was reported in the year it arose. An unreported loss is a lost loss.
Research and development
Most eligible R&D expenditure attracts a 100% additional deduction, so 200% of the amount is deducted in total. The rate, the eligible-expense definition and the negative list are set by announcements renewed periodically, and the scope was widened several times between 2018 and 2023. Check the announcement in force for the year rather than assuming the scope from an older guide.
Where foreign-invested companies most often go wrong
- Treating head-office charges as automatically deductible. Service charges from the parent need a genuine service, a documented basis and an arm's-length price; otherwise they are disallowed on audit.
- Assuming the 5% regime applies. The employee and asset tests are annual averages and group companies frequently exceed them without noticing.
- Letting the high-tech certificate lapse. The 15% rate depends on a certificate with three-year validity, and a lapse generally affects the whole year, not the period after expiry.
- Ignoring withholding on outbound payments. Royalties, service fees and interest paid to an overseas related party are subject to 10% withholding, reduced by treaty, at the time of payment — the obligation arises whether or not the payee files in China.
Sources and effective dates
- Enterprise Income Tax Law of the People's Republic of China — 25% standard rate, 20% for small low-profit enterprises, 15% for encouraged high-tech enterprises, five-year loss carryforward.
- Implementing Regulations of the EIT Law — deduction limits, and the 10% reduced rate for non-resident withholding.
- MOF / STA Announcement No. 12 of 2023 — small low-profit regime: 25% of income counted, 20% rate, thresholds of CNY 3 million / 300 employees / CNY 50 million assets, running to 31 December 2027.
Checked against the texts above in November 2026. Preferential rates change more often than the statutory rate — confirm the current announcement before filing.