Short answer: yes, tax evasion is a crime in China, but the law gives most first-time offenders a way out. Under Article 201 of the Criminal Law, deliberately evading tax can bring up to seven years in prison — yet if you pay the tax, the late-payment penalty and the administrative fine once the tax authority demands it, the case will normally not be prosecuted at all.
What Article 201 provides
Article 201, as amended by Amendment VII to the Criminal Law, targets taxpayers who use deception or concealment — a false tax filing, or simply not filing — to evade tax. Two tiers apply. Where the evaded amount is relatively large and at least 10% of the tax payable, the penalty is up to three years of imprisonment or criminal detention plus a fine. Where the amount is huge and at least 30% of the tax payable, the range is three to seven years plus a fine.
Withholding agents who fail to remit tax they have already withheld are treated under the same provision, and where the conduct is repeated without prior punishment the amounts are added together.
The fourth paragraph of Article 201 is the real battleground. If, after the tax authority lawfully issues a recovery notice, the taxpayer pays the tax, pays the late-payment penalty and accepts the administrative penalty, criminal liability is not pursued — unless within the previous five years the taxpayer was criminally punished for tax evasion, or was given two or more administrative penalties by the tax authority.
The threshold, and the one deadline that matters
Under Article 52 of the Prosecution Standards (II) issued by the Supreme People’s Procuratorate and the Ministry of Public Security, a tax-evasion case is opened where the evaded tax reaches at least RMB 100,000 and at least 10% of total tax payable across all taxes, and the taxpayer still fails to pay after the recovery notice. The same provision adds a line worth reading twice: paying the tax, the late-payment penalty or the fine after the police have formally opened the case does not bar criminal liability. The exemption therefore lives and dies by timing — the window closes when the file moves from the tax authority to the police.
Companies are not immune. Article 211 makes a unit liable to a fine, with the directly responsible managers and other directly responsible personnel punished as individuals. Offences such as fraudulently issuing VAT invoices (Article 205) carry no comparable escape clause.
An illustrative scenario
A hypothetical: a foreign-invested manufacturer under-reports revenue for two years and a tax audit follows. If it pays the assessed tax, the late fee and the fine inside the recovery-notice window, Article 201(4) normally closes the matter with no conviction and no criminal record. If it disputes the assessment for months instead, the file can be transferred to the police — and by then the exemption is gone, and the same figures become the basis for a prosecution.
The takeaway: in China a tax dispute is usually winnable at the administrative stage, and that is where the decision has to be made.
Wang Guan | Co-founder, Beijing Haolue Law Firm | +86 17813108512