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No Roller Coaster

Free Business in China.

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You closed the year with a loss. No profits to distribute. No bonuses.

Then comes the annual EIT settlement… and your acccountant pays EIT tax.

How is that possible?

Because taxable profit ≠ accounting profit.

Here’s what every foreign business owner needs to know. There are main two reasons you should know.

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Reason 1: You have costs which doesn't meet tax regulation

You paid for something. It’s in your books. But you don’t have a compliant fapiao (official tax invoice).

  1. A receipt? ❌ Not enough.
  2. A bank transfer record? ❌ Not enough.
  3. A fapiao with the wrong company tax number? ❌ Also not enough.

Tax bureau’s logic: No fapiao or qualified documents = no cost.Result: Your “loss” gets adjusted into “profit”.

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Reason 2: You spent too much on certain things

China’s tax law sets strict percentage limits on specific expenses. Go over the limit? The excess gets added back to your taxable profit.

The three biggest traps for foreign companies:

1. Business entertainment(client dinners, gifts)
2. Staff welfare (canteen, team building, health checks)
3. Advertising & promotion

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In China, you must manage two things religiously:

1. Fapiao collection – no invoice, no deduction.

2. Expense ratios – don’t blow the caps on entertainment or welfare.

Fix these two, and you’ll stop getting surprised by tax bills in loss-making years.

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Have questions about your specific situation? Call our hotline at 86+189 1629 8482 (English service available).

Set up in 2009 Focus on Tax& Accoounting +86 189 1629 8482 wcx@ruanyinchina.com