I.What type of income is commission classified as?

According to the Implementing Regulations of the Value-Added Tax Law of 2025,the commission for agency services belongs toModern Services - Business Support ServicesCategory.Specific characteristics include:

• NatureofIncome:IntermediaryServiceCompensation
• Taxcalculationmethod:
  • Generaltaxpayersaresubjecttoa6%value-addedtaxrate.
  • Small-scaletaxpayersaresubjecttoa3%taxrate(thepreferentialpolicyformicroandsmallenterpriseswillcontinuein2025).
• Confirmation timing: Based on the point when the service is completed and payment is receivable.

2.What are the main taxes involved when a company receives commissions?

Agency businesses need to focus on three types of taxes and fees:

• Value-addedTax:
  • BillingObligation:Requiredtoissue"brokerageagencyservices"VATspecial/ordinaryinvoices.
  • Declarationcycle:Monthlyorquarterlydeclaration
• Corporate Income Tax:
  • Taxrate:25%(smallandmicroenterprisescanenjoytieredpreferentialratesrangingfrom2.5%to15%).
  • Deductions:Relevantbusinesscosts(personnelsalaries,travelexpenses,etc.)
• Urban maintenance and construction tax (7% of the value - added tax amount):
  • UrbanMaintenanceandConstructionTax(7%/5%/1%)
  • AdditionalEducationFee(3%)
  • Localeducationsurcharge(2%)

III.How is tax paid on personal foreign trade commissions?

Natural persons providing agency services should pay special attention to:

• InvoiceIssuanceonBehalf:AgeneralVATinvoicemustbeissuedbythetaxauthority.
• IndividualIncomeTax:
  • Taxedas"incomefromremunerationforpersonalservices"atarateof20%-40%.
  • Itshallbeincorporatedintothecomprehensiveincomeduringtheannualsettlementandpayment.
• Special circumstances: If an individual business is established,the progressive tax rates of 5%-35% for business income may apply.

IV.What are the tax risks associated with cross-border payment commissions?

Special considerations for transactions involving overseas parties:

• Withholdingandremittanceobligation:
  • Paymentofoverseascommissionsrequireswithholdingof6%VAT.
  • Corporateincometaxiswithheldatarateof10%orthepreferentialtaxrateunderthetaxtreaty.
• Filing requirements:
  • AsingletransactionexceedingUSD50,000requirestaxfiling.
  • Pleaseprovidethecompleteservicecontractandpaymentreceipt.
• Anti-tax avoidance supervision: Strengthen cross-border tax inspections through CRS information exchange in 2025

V.Common Misconceptions in Commission Tax Treatment

Five Common Mistakes to Avoid in Practice:

• Confusingcommissionwithpaymentforgoodsanderroneouslyapplyingthe13%taxrate.
• Failuretofulfillwithholdingandremittanceobligationsforoverseaspayments
• Abnormalcashflowcausedbycashreceiptsandpayments.
• Failuretodistinguishbetweendomesticandforeignservicecontentresultedinincorrecttaxrateapplication.
• Disregardpreferentialtreatmentundertaxtreaties(e.g.the7%commissiontaxrateundertheChina-SingaporeAgreement).

VI.Tax compliance recommendations for 2025

Key operational points to ensure compliance:

• ContractSigning:
  • Specifytheservicecontent,paymentmethod,andtaxresponsibility
  • Agreedinvoicetypeandissuancetime
• Account Management:
  • Itisrecommendedtoestablishadedicatedforeignexchangeaccount.
  • Topreventfinancialflowconfusioncausedbythird-partycollection.
• Document retention:
  • Keepcompletedocumentationoftheserviceprocess.
  • KeeporiginaldocumentssuchasSWIFTmessagesforoverseaspayments.