CHINA
Corporate income tax
The corporate income tax in China, both for Chinese branches of foreign enterprises and Chinese-owned companies, imposes a rate of 25% on profits. There are some exceptions, for example for companies operating in encouraged sectors, which can take advantage of a rate reduced to 15%. Some tax incentives reward manufacturing companies operating in sectors considered new or high technology, although it is not always easy to obtain the necessary certifications, including the deductibility of part of entertainment, advertising and commercial promotion expenses, as well as part of research expenses and development.
In China, tax losses generated by the company can be carried forward to the next fiscal year for up to five years. Foreign companies incorporated under foreign law that have neither a registered office nor management in China are required to pay tax only on income generated within the People's Republic.
Value added tax
All companies and individuals involved in the sale of goods, workmanship, repair or replacement services, and import of goods into China are subject to Value Added Tax (VAT). Companies subject to VAT are divided into two categories: ordinary taxpayers and small taxpayers. Both domestic and foreign-invested companies are required to obtain ordinary taxpayer status upon meeting the requirements imposed by the Chinese tax authority. These may vary locally, but are usually made up of minimums related to sales, staffing, and so on.
The VAT rate for ordinary tax payers is typically 17% (in some cases even 13%), while it is of 3% for small taxpayers. The main difference between these two categories lies in the fact that while ordinary taxpayers can deduct the total amount of input VAT, paid on the purchase of new machinery and purchased goods, from output VAT deriving from the sale of their products , this is not possible for small taxpayers, resulting in a significant increase in costs for them.
China also envisages a tiered system of refunding part or all of the input VAT on exported goods, again only for ordinary taxpayers. The part of the VAT refunded varies from the good in question, also in this case following directives aimed at encouraging or discouraging the production and/or marketing of certain products for export.
business tax
The Business Tax is a transversal tax which it applies to the turnover for the sale of services. The rates vary from 3 to 5%, in some particular cases it can even reach 20%.
Withholding Tax
The standard rate on withholding tax for profits attributable to China, for non-resident companies, is equal to 10%. However, withholding tax rates for dividends, interest and royalties vary significantly for many of those countries (including Italy) that have signed a double taxation agreement with China.
Tax on personal income
Income from wages and salaries is taxable under seven progressive rates ranging from 3 to 45%. Monthly taxable income is calculated after a standard monthly deduction of 3.500 Renminbi (RMB) for local employees and 4.800 RMB for foreigners working in China (including residents of Hong Kong, Taiwan and Macao).
Tax charges for foreigners are counted, generally, based on the period of time spent in China, based on source of their income and the position held. Individuals from countries that have signed double taxation agreements with China, who are not in senior management positions, and who spend less than 183 days in a calendar year in the country are exempt from the tax in the case of wages paid by a foreign legal entity and whose income is not attributable to a permanent establishment in China.
In the case of countries that have not signed a double taxation agreement, the maximum limit within which one can work in China without being subject to IRPEF is 90 days. An individual residing in China between 90 and 183 days still needs to register with the tax authorities before the onset of the tax burden or at the time of tax return in order to benefit from the above agreements. If the individual is paid by a Chinese entity, any income from services performed in China will be taxable.
Individuals who reside in China for more than one year, but less than five years, are required to report and remit taxes on both domestically sourced and overseas-sourced income received by an entity located in China. The foreigners residing in China for more than five years, who have not left the country for a period of 30 continuous days or 90 cumulative days in a calendar year, are subject to tax on all their income wherever it arises (world-wide income).
INDIA
Corporate income tax
Income Tax for both Indian owned companies and Indian foreign owned branches, including limited liability partnerships (LLPs), is 30%, while it rises to 40% for foreign companies i.e. registered outside India. Foreign companies with indentured labor in India will also be subject to an income tax of 40% of the net income generated by such indentured employment.
Value added tax
Value added tax applies only to goods and not to services. VAT applies at every stage of the sale and a credit system records the tax paid.
There are four categories, which include 550 types of assets: 1. Basic products (essential commodities): 1% 2. Gold, silver and precious stones: 1% 3. Industrial products, capital goods and consumer products, including medicines, drugs, industrial and agricultural products, capital goods and special goods: 4% 4. The remaining products including derivatives of oil, tobacco, liquor etc. (These goods incur higher tax rates which vary from region to region): 12,5%
Sugar, textile products and tobacco derivatives are exempt from VAT for one year. All businesses are required to register for VAT, except businesses with a turnover of less than 500,000 Indian Rupees (INR), approximately 7.600 euros, which are exempt. Export VAT refunds are granted for all categories of goods and services.
Withholding Tax
La withholding tax on dividends (repatriation of profits to its foreign parent company) is of 15% while I profits repatriated from a foreign branch to an Indian company imposes a 30% withholding tax (although there is talk at the moment of a future reduction to 15%).
Tax on personal income
India has different tax rate categories that depend on income, but also on the gender and age of the person. Rates may vary from total exemption up to a maximum of 30%. Personal income tax is also based on the residence of the individual and the source of his income.
An individual will be considered a resident of India if one of the following two conditions occurs: stay in India, in the reference year, for a period, or more aggregate periods, equal to or greater than 182 days, or stay in India, during the four years preceding the reference year, for a period, or more aggregated periods, equal to or greater than 365 days, accompanied by 60 or more days spent in the reference year. Residents are taxable on their global income, while non-residents are taxable only on income generated, received or accrued in India. Therefore, income from employment will be taxable, regardless of the residence of the employer. Income from distribution of profits is tax free in India.
PROJECTED IMPACT
China and India have a relatively complex and onerous tax regime for companies. The continuous reforms implemented by the two governments make it difficult to maintain, on the one hand, a business model that is always efficient and in step with the opportunities offered, and on the other, the certainty of not finding yourself in a situation of defect with respect to the local laws. That said, interest in the two major Asian countries remains high and the tax burden and bureaucratic difficulties are unlikely to discourage those who see interesting business opportunities, especially in a period in which Western markets are at a standstill.
