Selling a software or data licence to a Chinese company from abroad

A Chinese company can pay a foreign licensor that has no Chinese entity. Before paying, it withholds income tax at 10% of the gross fee and 6% VAT, files with its tax office if one payment exceeds US$50,000, and may register the contract as a technology import. The UK, US and Irish tax treaties leave the 10% unchanged.

Your first Chinese customer has agreed a price for your software or your data, and the contract is on the table. You have no company in China and do not want one yet. Before any money leaves China, the customer’s finance team will take tax out of your fee. Unless the contract says who bears it, the amount you invoice is not the amount you receive, and on a US$60,000 licence the gap starts at US$6,000.^⁠[1]

Your tax treaty may not help at all. China’s own rate on a royalty paid abroad is already 10%, and the UK, US and Irish tax treaties cap it at the same 10%.^⁠[2,3,4] What moves your net price is one clause in the contract.

Can a Chinese company pay our licence fee if we have no entity in China?

Yes. A Chinese business can buy a licence from a company abroad and pay it abroad, and it can book the cost on your own invoice. Whether you need a Chinese company to sell in China covers the invoice point and the other routes in. A licence adds work on the customer’s side before it pays, in this order:

1. It withholds enterprise income tax (企业所得税) from each payment of your fee, and pays the tax to its tax office within 7 days of withholding it.^⁠[5,6]
2. It withholds value-added tax (增值税) at 6%.^⁠[7]
3. If a single payment is above US$50,000, it files the payment with its tax office before the first transfer. One filing covers every payment under the contract, and it can be made online.^⁠[8,9]
4. If the licence is a technology import contract, it registers the contract with the commerce department within 60 days.^⁠[10]

The tax filing includes a copy of the contract, and a contract in English goes in with a Chinese translation (2013 Announcement, Article 2).^⁠[8] That makes the Chinese translation of your licence one more document to settle before the first invoice.

How much tax comes off a licence fee paid abroad?

Income tax of 10% on the whole fee, and VAT of 6%. A royalty (特许权使用费) is income from letting someone use a patent, know-how, a trademark, a copyright or another franchise right.^⁠[1] A foreign company’s royalty is taxed on the gross amount, with no deduction for what the software cost to build (Enterprise Income Tax Law, Article 19).^⁠[5] The Law sets 20% for this income, and its regulations cut it to 10%.^⁠[1,5]

Tax	Rate and base	Who can recover it
Enterprise income tax企业所得税	10% of the gross fee, withheld by the customer	Not the customer. It is the licensor’s tax
Value-added tax增值税	6% of the sales amount, which excludes the VAT itself, withheld by the customer	The customer, as input tax, on the tax payment certificate
Urban maintenance and construction tax城市维护建设税	None on VAT paid for an overseas seller	Nothing to recover

The two taxes behave differently. A customer that credits input VAT claims the withheld amount back on the tax payment certificate,^⁠[11] so VAT added on top of your fee costs that customer nothing once the credit is claimed. The income tax is yours, and nobody in China gets it back. That 10% is what the tax clause decides.

Our contract says the fee is net of Chinese tax. Who pays?

Your customer, and it pays more than 10%. Where the contract puts the tax on the Chinese payer, the payer treats your net fee as an after-tax figure and grosses it up before withholding (SAT Announcement 2017 No. 37, Article 6).^⁠[6]

Say a two-person UK software company licenses its route-planning software to a logistics company in Ningbo for US$60,000 a year, with Chinese VAT added on top and paid by the customer. The customer pays US$3,600 in VAT and later credits it. It withholds US$6,000 in income tax and sends US$54,000 to the UK. The UK treaty changes nothing, because its cap on a copyright royalty is 10%.^⁠[1,2,7]

Now write the fee as “US$60,000, net of all Chinese taxes”. The customer treats US$66,667 as your income (60,000 ÷ 0.9), pays US$6,667 in income tax from its own funds, and sends you US$60,000.^⁠[6] One sentence has moved US$6,667 a year from your side to the customer’s. At US$60,000 the payment is also above the US$50,000 line, so the customer files before the first transfer.^⁠[8]

Contract Commercial Review reads the tax, payment and currency clauses of a licence or reseller agreement before you sign it.

Does our tax treaty lower the 10%?

From the UK, the US or Ireland, no. From Hong Kong, yes, to 7%. A treaty caps the tax China may charge on a royalty paid to a resident of the other side, and on a copyright or know-how royalty the first three caps equal China’s own rate.^{⁠[2,3,4,13]}

Licensor resident in	Cap on a software or know-how royalty	Income tax on US$60,000
United Kingdom (2011 agreement)	10%	US$6,000
United States (1984 agreement)	10%	US$6,000
Ireland (2000 agreement)	10%	US$6,000
Hong Kong (arrangement, Fifth Protocol)	7%	US$4,200

The lower rate is claimed, not granted. You decide that you qualify, fill in a treaty-benefits information report (非居民纳税人享受协定待遇信息报告表) and give it to the customer. The customer files it with its withholding return and applies the treaty rate. Without a complete report, it withholds at China’s own rate.^⁠[14]

You keep the supporting papers for the tax office to ask for later. They are a certificate of tax residence for the year of the income or the year before, the contract and payment records and, for a royalty, evidence that you are its beneficial owner.^⁠[14] In the US the certificate is Form 6166, requested on Form 8802.^⁠[15] In the UK it is HMRC’s certificate of residence, applied for online.^⁠[16]

Is a support or maintenance fee taxed like the licence?

Not for income tax, if the support is done outside China. For VAT, yes. Income from services is sourced where the work is done, while a royalty is sourced where the paying company is (Implementing Regulations, Article 7).^⁠[1] Support delivered from abroad is outside China’s income tax. VAT reaches both, because a service sold to a Chinese business counts as consumed in China unless it is consumed on site abroad.^⁠[11]

The name on the invoice line does not settle it. The State Taxation Administration reads a treaty’s royalty article this way. A service provider that uses its know-how without licensing it is not paid a royalty. Where a right of use is licensed, the payment is one.^⁠[17] What counts is whether the customer receives a right of use.

Does the licence need registering as a technology import?

If it transfers technology, yes, and your customer registers it. A technology import (技术进口) covers patent licences, know-how, technical services and other transfers of technology into China.^⁠[18] For technology that may be imported freely, the Chinese party registers the contract online within 60 days of it taking effect, and receives a certificate within 3 working days. A contract paid by running royalty registers within 60 days of the first royalty base arising.^⁠[10]

Registration does not decide whether the contract binds. A contract for freely importable technology takes effect when it is validly made, not when it is registered (Regulations, Article 17).^⁠[18] Whether a plain software licence counts as a technology import at all is one of the open points below.

What changes if our data ends up on a map?

A second approval, and a narrower entity route. China reviews every map made public, free of charge, and the importer of a product carrying map graphics submits it for review (Map Management Regulations, Article 16).^⁠[19] The authority decides within 20 working days, and an online map service must keep its map data on servers in China.^⁠[19]

Those articles do not say whether address or location data used only inside a customer’s own systems is a public map, and the answer decides whether you or the customer carries the review. For a map-data company, setting up a Chinese company of its own does not get around this. Foreign investment is prohibited in compiling navigation electronic maps and in listed surveying work (2024 negative list, item 19).^⁠[20] China’s negative list, explained covers the rest of that list.

Which points are still unsettled for software and data licences?

Three, as read on 1 October 2026.

• Whether a data licence is a royalty. The income tax definition names patents, know-how, trademarks, copyright and “other franchise rights”.^⁠[1] It does not name data or databases, so the customer’s tax office decides on the contract’s terms.
• Whether a software licence is a technology import. The registration Measures list patent, know-how and technical service contracts and “other contracts containing technology import”, and do not name software.^⁠[10]
• How VAT is withheld when the price includes it. The Law computes the tax on a sales amount that excludes VAT,^⁠[7] and the Regulations leave the withholding procedure to the Ministry of Finance and the State Taxation Administration.^⁠[11] The example above puts VAT on top of the fee for that reason.

A Commercial Advice Letter takes one product and one kind of customer and sets out the options: licensing direct, selling through a Chinese reseller, or selling through a company of your own. It shows what each does to price, payment and licence terms.

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