How is China’s Corporate Income Tax Calculated?

Company owners and managers in China should understand how to arrive at the Corporate Income Tax (CIT). This article will cover how to calculate the CIT so that local and foreign companies can comply with Chinese CIT law and make informed investment decisions.

Corporate Income Tax Formula

China has a straightforward formula for calculating the CIT. The good thing is, you can learn several terms and how they apply in taxation. Therefore, when calculating the CIT, this formula will come in handy.

Tax payable = taxable income x tax rate – applicable deductions or exemptions

Let’s briefly discuss each term to understand what you need to include in the formula.

Taxable Income

A company’s taxable income is the income over which the government imposes a tax annually. The China tax services identify what should be included when calculating corporate income tax. The taxable income helps companies to know the amount they owe the government annually. To calculate a company’s taxable income, you should follow this formula:

Taxable income = total annual income – expenses – carry forward losses

Total Annual Income

A company’s total annual income is the total amount a company earns from selling products or services over a year. The total annual income doesn’t include the company’s expenses and costs.


A company’s expenses are the total costs a company incurs in its day-to-day operations. Here, you’ll count all the expenses accrued in a year.

Carry Forward Losses

A company’s carry forward losses are the losses from the current year that are transferred to the subsequent years. The purpose of carrying forward losses is to reduce a company’s tax liability.

Tax Rate

The company’s tax rate is the percentage that’s used to tax companies. Tax rates may apply differently to various companies depending on their cumulative taxable income. For example, in China, the State Administration of Taxation has come up with different tax rates to determine the amount of corporate income tax to be paid.

Applicable Deductions or Exemptions

In China, companies can benefit from a variety of deductions applied when calculating the corporate Income tax. For instance, companies can benefit from statutory deductions and other additional deductions. In addition, in some cases, companies may be fully exempted from paying some taxes. With various tax services in China, you can get all the information to understand what’s included in CIT deductions and exemptions.


When calculating the CIT, the formula discussed above will come in handy to help you figure your company’s CIT. In addition, understanding how to calculate the CIT may help companies know whether they work in compliance with tax services in China and make wise investment decisions based on the taxes they pay.

Related posts