| VAT is different than sales tax. Sales tax is charged on the sales price while VAT is charged on every step of the production process. VAT is very hard to avoid. All of the inputs to your business have to have VAT charged on them - if your business didn't pay VAT on your business expenses in China, you can't deduct them as expenses, which increases the business tax you pay. Several years ago, when I still had a business in China, you'd actually have to paste physical tax invoices into a paper book and submit it with your accounts to the relevant taxation authorities. Chinese consumers pay very high taxes on consumption both because of the VAT system which is essentially invisible and hard to avoid and because of very high import taxes. It was always interesting that they think they don't pay much tax but are also obsessed with buying things overseas where the prices are usually cheaper. As other posters have noted, payroll taxes are an income tax. Places like the USA split payroll taxes 50-50 between the employer and the employee. In China, payroll taxes - called "social insurance" - are skewed towards the employer. It's been 5 or 6 years since I've employed people in Mainland China, but if I recall correctly, the company "contribution" to social insurance was on the order of 21% while employees only had around ~6% of their paycheck withheld to cover their portion of the tax. From the business's perspective, all of these taxes are part of the employee's pay. If an employee asked to be paid 10000, she might only take home 8000 after social insurance and income tax withholding while she'd cost the company 12000. In reality she was being paid 12000 and the government was taking away 4000 of her money each month. (Rough numbers) It was common earlier in the decade to have potential hires ask for a certain salary after tax and then expect the company to pick up the extra. This was because many businesses at the time would pay cash under the table to avoid these tax expenses. If you're interested in learning more about tax invoices in China, you can check out a post I wrote about them ~10 years ago: https://www.larrysalibra.com/10-things-you-didnt-know-about-... |