China International Tax and Transfer Pricing Review
Information current to: 27 September 2026
Currency and tax year: Renminbi (RMB/CNY); the tax year is the calendar year.
Executive summary
China's Enterprise Income Tax (EIT) framework applies a 25% standard rate to resident enterprises and a reduced 10% rate to specified China-source income of non-resident enterprises without an effectively connected Chinese establishment. Tax treaties may reduce withholding further. A foreign business should focus on residence and permanent-establishment status, source and classification of payments, treaty documentation, and transfer-pricing compliance.
The transfer-pricing regime is spread across Chapter VI of the EIT Law and several State Taxation Administration (STA) notices rather than one code. The archive now contains the current EIT Law and implementation regulations, plus official-status checks for core TP notices. China's VAT Law and implementing regulations also took effect on 1 January 2026; VAT is a separate indirect-tax workstream and should be assessed for local and cross-border supplies.
1. Legal framework and scope
The principal corporate income-tax sources are the Enterprise Income Tax Law (EIT Law) and its Implementation Regulations. The EIT Law's latest identified amendment is dated 29 December 2018. The Implementation Regulations were amended by State Council Decree No. 797 in December 2024, effective 20 January 2025; the current official STA text in the country folder reflects that amendment.
Resident enterprises are generally subject to EIT on worldwide income. An enterprise formed outside China may be resident if its place of effective management is in China. Non-resident enterprises are taxed on China-source income and on foreign-source income effectively connected with a Chinese establishment. The standard EIT rate is 25%; qualifying high and new technology enterprises may use a 15% rate if they meet the applicable conditions. The domestic statutory rate for specified non-resident passive income is 20%, reduced to 10% by the Implementation Regulations, subject to treaty relief.
The EIT framework also includes foreign tax credits, controlled-foreign-company rules, thin-capitalisation rules and a general anti-avoidance provision. VAT is not part of the EIT or transfer-pricing analysis in this note, but the 2026 VAT regime can materially affect goods, services, imports and cross-border supply chains.
2. Permanent establishment and taxable nexus
The EIT Law distinguishes resident enterprises from non-resident enterprises with or without an establishment or place in China. The Implementation Regulations describe relevant establishment or place concepts. Review offices, factories, management locations, extraction sites, construction or service projects, personnel and dependent agents, as well as whether income is effectively connected with the local establishment.
The applicable treaty can limit China's domestic taxing rights and may define construction, service and agency permanent establishments differently. If a taxable establishment exists, assess registration, profit attribution, expense allocation, returns and withholding-agent obligations. Contract negotiation, local delivery and installation, extended projects, and staff performing core revenue activity are practical risk indicators.
3. Withholding tax and cross border payments
| Payment | Domestic position | Treaty and practical point |
|---|---|---|
| Dividends to a non-resident without an effectively connected establishment | 10% reduced EIT rate. | A treaty may provide a lower rate. Check ownership threshold, residence, beneficial ownership and anti-abuse requirements. |
| Interest | 10% reduced EIT rate on qualifying China-source passive income. | Confirm source, instrument, treaty rate, beneficial ownership and any exemption. |
| Royalties | 10% reduced EIT rate on qualifying China-source passive income. | Separate licence rights from services and know-how; treaty definitions and VAT may also matter. |
| Services or project fees | Depends on China source, presence and effective connection; no single blanket rate. | Determine whether a Chinese establishment exists and whether the payer must withhold or the provider must file directly. |
The payer generally acts as withholding agent for non-resident income subject to source withholding. Confirm whether a payment is passive income or attributable to a Chinese establishment before applying the 10% rate. Treaty relief should be supported with residence and beneficial-owner materials and the procedures required by the tax authority.
4. Royalties software and services
For software, SaaS, cloud hosting, data access and technology support, identify the rights actually transferred and services actually performed. A licence of copyright or know-how may be a royalty, while hosting, implementation, maintenance or consulting can be treated differently. The analysis should also establish where the service or intangible is used and whether personnel or agents perform activities in China.
Keep the contract, IP-rights schedule, work evidence, deliverables, acceptance records and allocation of bundled fees. For imports of services and intangibles, separately assess VAT under the law effective from 1 January 2026. Do not assume that the EIT withholding category determines VAT treatment.
5. Treaties and double tax relief
Review the relevant double tax agreement together with domestic law for the tax period. Confirm residence, entitlement to benefits, beneficial ownership, permanent-establishment status and any principal-purpose or other anti-abuse rule. Treaty rates may reduce domestic withholding but do not remove registration, filing or documentation steps.
Resident enterprises may credit qualifying foreign income tax within statutory limits. Retain foreign tax certificates, income calculations and proof of payment. If China and the other state make inconsistent adjustments, consider the mutual agreement procedure under the treaty.
6. Transfer pricing
Chapter VI of the EIT Law sets the framework for special tax adjustments, associated enterprises, arm's-length pricing, advance pricing arrangements, related-party reporting, thin capitalisation, CFC and anti-avoidance. STA Public Notice No. 42 (2016) governs related-party reporting and contemporaneous documentation and is marked fully effective in the central STA policy database. Notice No. 6 (2017), covering special tax investigations, adjustments and mutual agreement procedures, is marked amended: the second paragraph of Article 41 was repealed in 2018. Guoshuifa [2009] No. 2 is also marked amended; apply only provisions not superseded or repealed by later notices.
The methods include comparable uncontrolled price, resale price, cost plus, transactional net margin, profit split and other methods where appropriate. China requires related-party reporting and, when thresholds apply, master files, local files, special-issue files and country-by-country reporting. A master file is generally required where annual related-party transactions exceed RMB 1 billion, or where the Chinese entity has cross-border related-party transactions and its group already prepares a master file. Local-file thresholds differ by transaction type: RMB 200 million for tangible-asset transfers, RMB 100 million for financial-asset transfers, RMB 100 million for intangible-asset transfers and RMB 40 million for other related-party transactions in total. CbCR can apply to a Chinese ultimate parent with group consolidated revenue above RMB 5.5 billion or to a designated Chinese reporting entity.
Loss-making limited-risk manufacturers, simple distributors and contract R&D providers may face heightened scrutiny and can have documentation duties even below ordinary thresholds. Maintain a functional analysis, transaction data, comparables and support for local-market factors. The statute and STA Notice No. 64 (2016) provide the framework for unilateral and bilateral APAs; MAP is addressed in the investigation and adjustment rules.
7. Priority actions
- Test Chinese residence, establishment and treaty permanent-establishment status against the actual people, premises, projects and contract flows.
- Map dividends, interest, royalties and service fees by source, income character, treaty eligibility and withholding-agent process.
- Screen all related-party transactions against the Notice No. 42 reporting and documentation thresholds; prepare files before an audit request.
- Assess VAT separately under the 2026 VAT Law and its implementing regulations for imports and cross-border supplies.
Sources reviewed
- Enterprise Income Tax Law and Implementation Regulations, including the 2024 amendment effective 20 January 2025; current Chinese texts are saved in
04_China. - STA Public Notices No. 42 (2016), No. 6 (2017), No. 64 (2016) and Guoshuifa [2009] No. 2; official status memorandum
CHINA_TP_NOTICES_STATUS.mdin04_China. - Value-Added Tax Law and Implementation Regulations, both effective 1 January 2026.
- China country dossier and EIT amendment check in
04_China.