Corporate Income, Withholding, & VAT Tax Rates In Countries Along China’s Belt & Road Initiative

Op/Ed by Chris Devonshire-Ellis

China has signed Belt & Road agreements with some 147 countries and territories globally. The majority of these are emerging economies, yet collectively useful to China as they present the future trading patterns China wishes to see develop. In this list therefore is ‘something for everyone.’

Yet assessing which of these 147 areas are more likely to produce rewards for investors, is to some extent, a tax question. In this article we have listed Corporate Income Tax rates, Withholding Tax rates and applicable Sales Tax rates.

Corporate Income Tax applies to all investors establishing a business. Rates can vary, dependent upon regional geography, types of business activity, and turnover. Yet all investors need to plan. However, these rates, especially for the services industries, can be reduced through deft application of royalties and other services charged from an overseas parent to its subsidiary, which is why we identify:

Withholding Taxes are charged on mainly services provided by a non-resident company to a resident company (which can be its own subsidiary). As a non-resident company cannot be charged for Corporate Income Tax (CIT), Withholding Taxes are applied instead. As can be seen, these are often lower than the prevailing CIT, and can be reduced still further according to the terms of any pertinent Double Tax Treaty (DTA) that exists. In this case we provide a list of Belt & Road countries with a China DTA. But others, for example between Armenia as a Belt & Road nation, and the United States may also be applicable – these two nations have a DTA between them. It pays to research when considering an investment into a Belt and Road nation whether a DTA between that country and your investing nation is applicable. Substituting a lower, DTA applied withholding tax for services between parent and subsidiary, such as royalties for trademark, patent and technology transfers can reduce the profits tax bill by between 10-25%. Applicable Withholding Tax rates are important.

Sales Taxes, VAT and GST are applicable on imported goods, and occasionally services, although these amounts can differ depending on the product. Obviously it pays to know what rates are applicable to the importer before they can resale your product to their domestic market. In circumstances where the goods are imported (maybe as component parts), finished and re-exported, claims may be made to reimburse some or all of the original tax. These taxes are identified per item by an internationally used ‘Harmonized System’ (HS) codes which all customs officials use to identify the actual product and subsequently determine local dutiable value. When looking at importing or exporting to these areas, it is important to know the pertinent HS code and applicable local import duty.

Minimum Wage Levels & Individual Income Taxes for an update on these as apply to all Belt & Road countries, together with a count of the available workforce, please refer to our earlier article here and our analysis of this from the Chinese competitive labor cost perspective here.

Note: the rates provided below apply to standard trading, processing and manufacturing businesses. In some cases, CIT rates may be staggered according to levels of income or types of industry. In certain mining, energy and financial sectors, higher CIT rates than illustrated may apply.

Withholding Tax rates apply to non-resident companies billing for services from overseas. Some are trade bloc specific. Rates can vary dependent upon service and be reduced under applicable DTA conditions. GST/VAT and Sales Tax rates can vary from service and product provided.

For specific clarifications please contact your professional advisers or email us at silkroad@dezshira.com

Related Reading

• Minimum Wages, Available Workforce & Individual Income Taxes For All Countries and Territories In China’s Belt & Road Initiative
• How China Added Another 1.4 Billion Low-Cost, Offshore Workers to its Production Capacity
• China’s New Economic Silk Road
  This unique and currently only available study into the proposed Silk Road Economic Belt examines the institutional, financial and infrastructure projects that are currently underway and in the planning stage across the entire region. Covering over 60 countries, this book explores the regional reforms, potential problems, opportunities and longer term impact that the Silk Road will have upon Asia, Africa, the Middle East, Europe and the United States.