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International Taxation
Taxation in China – A summary
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History
China has a rich and
extensive history spanning several thousands of years of civilisation.
For centuries, China stood as
a leading civilisation, far ahead of the rest of the world in the streams of
arts and sciences. A significant aspect of China is it’s long cultural and
national history. The Chinese people have shared a common culture longer than
any other group on earth. The Chinese writing system dates back almost 4,000
years. The imperial dynastic system of government, which continued for
centuries, was established as early as 221 BC. Although specific dynasties
were overturned, the dynastic system survived. China was even ruled at times
by foreign invaders, such as the Mongols during the Yuan Dynasty, from AD 1279
to 1368, and the Manchus during the Ching Dynasty, from AD 1644 to 1911, but
the foreigners were largely absorbed into the culture they governed. In the
19th and early 20th centuries, it went through civil unrest and was affected
by some grave famines. China also witnessed military defeats and foreign
invasions The dynastic system was overturned in 1911, and a weak republican
form of government existed until 1949. In that year, after a long civil war,
the People’s Republic of China, with a Communist government, was proclaimed.
This government and the ruling Communist party have controlled China ever
since. Although the dynastic system has disappeared, the People’s Republic
occupies essentially the same territory and governs the same people. If
anything, the culture and power of China seem stronger in the late 20th
century than at almost any other period in history
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Facts
The People’s Republic of
China (PRC), also known as The Republic of China (ROC), is the world’s largest
country in terms of population. The 2006 census declares the population at
1,313,973,713 It is the fourth largest in area with territory that extends
over 9.6 million square kilometers. (9,596,960 sq km) China has over 6,500
islands and a population of 1.3 billion of whom 92% are Chinese. The remainder
is made up of various minorities. China is officially defined as an atheistic
country.. China is divided into 23 provinces, 5 autonomous regions, 4 central
administrative authorities and 2 special administrative areas. Mandarin is the
official language. English is also spoken by some Chinese, particularly the
young, many of whom have a good command of the English language. In China, the
currency in use is the YUAN (CNY) or the RENMINBI (RMB). The YUAN is divided
into ten JIAO. The JIAO is divided into 10 FEN. The ethnic group is a mixture
of Han Chinese 91.9%, Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu, Mongol,
Buyi, Korean, and other nationalities 8.1%.
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Economy
The economic revolution in
China began in 1978 when the Government contributed to turning a
Communist-style centralized economy to one that operates on the principles of
a market economy. The steps towards modernization led to a tremendous increase
in foreign investments in China and to the abolition or replacement of
factories that were controlled centrally by the Government and turning them
into separate entities that could be controlled by local managers. The main
prosperity has been seen in industry and the services sector while agriculture
is on a constant decline. The services sector contributes some 32% to the
Chinese economy, industry contributes approximately 53% and the balance, some
15%, has its source in agriculture and forestry. The main exports from China
are machinery and equipment, clothing and toys. China’s economy, during the
last quarter century has changed from a centrally planned system that was
largely closed to international trade, to a more market-oriented economy that
has a rapidly growing private sector and is a major player in the global
economy. Reforms started in the late 1970s with the phasing out of
collectivized agriculture and expanded to include the gradual liberalization
of prices, fiscal decentralization, increased autonomy for state enterprises,
the foundation of a diversified banking system, the development of stock
markets, the rapid growth of the non-state sector and the opening to foreign
trade and investment. China, in 2006 stood as the second-largest economy in
the world after the US, although in per capita terms, the country is still
lower middle-income and 130 million Chinese fall below international poverty
lines. Economic development has generally been more rapid in coastal provinces
than in the interior and there are large disparities in per capita income
between regions.
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Legal system
The Chinese legal system is
based on civil law system; derived from Soviet and Continental Civil Code
legal principles. Legislature retains power to interpret statutes. The
Constitution, ambiguous on judicial review of legislation; has not accepted
compulsory International Court of Justice (ICJ) jurisdiction Historians divide
Chinese legal history into categories of traditional China and modern China.
Traditional China legal history and structure is characterized by: feudalism,
imperialism, and rule under emperors. China’s legal system includes laws of
seven categories: the Constitution and related laws, civil and commercial
laws, administrative laws, economic laws, social laws, criminal laws, and
litigation and non-litigation procedural laws. The current Constitution of the
PRC, adopted in 1982, is viewed as the highest source of law in the country.
As previously noted, the Constitution establishes the framework of the
government, in addition to codifying the general principles of government and
society and listing the fundamental rights and duties of the people of China
Unlike common law jurisdictions such as the United States or England, there is
no strict precedential concept for case law. In theory, each case stands as
its own decision and will not bind another court. However, in practice, lower
people’s courts judges often attempt to follow the interpretations of the laws
decided by the Supreme People’s Courts. Moreover, higher courts can use the
finality of their judgments on appeals as having a binding effect on the lower
court that issued the first judgment or order.
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Judicial hierarchy
The highest court of law in
China is the Supreme People’s Court, where judges are appointed by the
National People’s Congress. Below the Supreme People’s Court are the Local
People’s Courts comprising of higher, intermediate, and local courts; followed
by the Special People’s Courts, which primarily comprise of military,
maritime, and railway transport courts.
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Political system: System of
People’s Congress
China has a communist state
government. The System of People’s Congress is an organizational form for the
state power in China. It is China’s fundamental political system. The power in
the People’s Republic of China belongs to the people and the organ for the
people to exercise state power is the National People’s Congress and local
people’s congresses at all levels. The National People’s Congress (NPC) and
local people’s congresses are established through democratic elections,
responsible to and supervised by the people. State administrative, judicial
and pro curatorial organs are created by, responsible to and supervised by the
people’s congresses. The National People’s Congress is the highest organ of
state power. Local people’s congresses are local organs of state power. The
Communist party of China (CPC) was established on July 1, 1921. In 1949, the
CPC founded the People’s Republic of China (PRC). All power in China belongs
to the people... Its basic characteristics are: It has extensive
representation, and is the basic form for the people to administer the
country. It follows the principle of democratic centralism, i.e., it
guarantees that the people to enjoy extensive democracy and rights, at the
same time guaranteeing that state power is exercised in a centralized and
unified way. Under the premise that the people’s congresses exercise the state
power in a unified way, the state’s administrative power, judicial authority,
pro curatorial authority and the leadership over the armed forces are clearly
divided to ensure that the organs of state power and administrative, judicial,
pro curatorial and other state organs work in a coordinated way.
The System of the Head of
State
The President of the People’s
Republic of China is the head of state for China. The President represents the
People’s Republic of China.
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Taxation
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History of tax legislation
An overhaul of China’s tax
system began in 1979 as part of the Four Modernizations program. The
principal domestic levies, as in the past, were commercial and industrial
taxes imposed on all enterprises, but, after 1979, taxes were due only on
assigned production quotas. In 1993, the Consolidated Industrial and
Commercial Tax was levied (usually at 5–10%) on agricultural and industrial
production, commercial retailing, and service, transportation, and
communication earnings. On 1 January 1994, the PRC Individual Income Tax law
came into effect in China. The PRC introduced a new turnover tax system
consisting of a VAT, business tax, and consumption/excise tax, to replace
the CICT. Under the new system, the sale or importation of goods and
services are subject to VAT at a standard rate of 17%. Other services and
the transfer of real property and intangible assets are subject to a
business tax with a rate ranging from 3% to 20%. Consumption/excise taxes
were also introduced to tax 11 categories of goods, including cigarettes and
alcoholic beverages. Under a tax law that took effect on 1 July 1991, joint
and foreign owned ventures were required to pay a combined national and
provincial tax levied at 33% of pre-tax income. A foreign-owned enterprise
with income from sources in China but not established there pays a 20%
withholding income tax, and royalties for certain types of technical
knowledge are taxed at 10% of the revenue amount. Individuals are required
to submit individual income tax returns to the Tax Bureau on a monthly
basis. Effective 1 January 1996, tax rates ranged from 5% to 45% for
individual income tax.
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Background of personal
income tax system in China
China has had a personal
income tax system since 1980, although the incomes of many Chinese continue
to fall below the taxable amount. China only commenced in the year 1980 to
levy personal income tax, already widely practised around the world. At that
time, since most Chinese people’s incomes were below the taxable amount,
overseas people working in China consisted of the majority of the group
paying personal income taxes. China overhauled its personal income tax
system in 1994 and adopted uniform tax rates for both, Chinese and overseas
persons. As the economy grew and people’s living standards improved, more
and more Chinese residents paid income taxes. In 1994, the country conducted
a major reform of its individual income tax system, which divided taxpayers
into two categories: residents and non-residents, with the latter referring
to people having no permanent residence in China or having stayed in China
for less than one year. Residents are required to pay taxes for all their
income, made both home and abroad, while non-residents only have to pay
taxes for their income obtained in China
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Tax legislation
The Peoples’ Republic of
China (PRC) has it’s income tax law embodied in the legislation enacted in
the year 1994 called as The Income Tax Act. Article 13 of this Act provides
that the management of personal income tax collection shall be conducted in
accordance with the provisions of the “Law on the Management of Tax Revenue
Collection in the People’s Republic of China.” Under this Act, which
contains 126 articles, Income Tax is broadly classified into the following
two categories;
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Consolidated Income Tax
This is the income tax
which is payable by an individual earning income from sources within the
PRC, whether such individual is a resident of PRC or not. Article 13
provides that consolidated income tax of an individual shall be levied on
the amount of his net consolidated income, which shall be the gross
consolidated income minus the amount of tax-exempt income, and various
deductions.
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Profit-Seeking Enterprise
Income Tax
This is the tax which is
leviable on any profit seeking enterprise operating within the territory
of China, whether having it’s head office within the PRC territory or
outside the PRC territory. In respect of a profit seeking enterprise
operating within the territory of China, having it’s head office outside
the PRC territory, profit-seeking enterprise income tax is levied on its
income derived within the territory of the PRC.
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Categorization of taxation
The major tax categories
applicable can be divided into two groups according to their respective
levying authorities. They are as under;
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Taxes levied by Tax
Bureau
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A turnover tax
system on business transactions, including:
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Taxes on income,
including:
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Taxes on property
and behavior, including:
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Taxes on natural
resources, including:
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Taxes levied by Customs
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Customs duty;
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Vessel tonnage tax.
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Tax administration
The Law of People’s
Republic of China on Taxation Administration is the basic law on taxation
administration and is also a procedural law. All enterprises, no matter
domestic or foreign, should be treated equally by this law.
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Taxation authorities
In China, a separate tax
system was set up in 1994, i.e., taxes were divided into central taxes,
local taxes and central-local share taxes. The Ministry of Finance (MOF)
and the State Tax Bureau are the executive authorities in charge of
taxation. The State Tax Bureau is responsible for taxation administration.
Two tax bureaus are set up at each administrative level all over the
country, one is in charge of the collection of central taxes and
central-local share taxes, such as the VAT, Consumption Tax and FIEs’
Income Tax, etc., the other is in charge of the collection of local taxes,
such as Individual Income Tax, Business Tax, Land Appreciation Tax, Stamp
Tax and Urban Real Estate Tax, etc.
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Taxation control
FIEs should complete tax
registration, file tax returns, maintain accounting records and correctly
use invoices in accordance with related policies. The major policies on
the filing of tax returns are as follows:
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Tax year
The tax year is the
calendar year, i.e., from January 1 to December 31. If a foreign
enterprise experiences difficulties in computing its taxable income on the
calendar-year basis, it may apply to the tax authorities to adopt its own
fiscal year as the tax year. An enterprise that commences business within
a calendar year or has operated for less than 12 months in a calendar year
treats the actual operating period as the tax year.
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Filing tax returns
An FIE is required to
file its annual tax returns, audited financial statements and the
auditor’s report to the tax bureaus within 4 months after the end of the
year. The application for deferring the filing of the above documents
should also be submitted within this period of time. The penalty for
failure to file the above documents within the prescribed time limit is
0.2 percent per day on the tax amount overdue.
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Tax payment and
collection
FIEs are required to pay
their provisional taxes within the required time limit.
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Penalties
Any taxpayer or
withholding agent who fails to perform tax registration procedures, fails
to set up accounting system and fails to keep its business records within
a prescribed time limit is required to redress within a prescribed time
limit. Any failure to redress will be subject to a fine of up to RMB 2,000
Yuan. If the violation is serious, a fine up to RMB 10,000 Yuan will be
imposed.
Any taxpayer or
withholding agent who fails to file tax returns within the prescribed time
limit is required to redress and will be imposed a fine of RMB 2,000 Yuan.
A fine over RMB 2,000 Yuan but under RMB 10,000 Yuan will be imposed if
the taxpayer or withholding agent fails to meet the due date a second
time.
The fine for tax evasion
which involves such unlawful activities as forgery, falsifying or
concealing relevant information, fraud, or failure again to pay tax within
the prescribed time period is up to but not more than 500 percent of the
tax due. In most of the above cases, serious offenders will be prosecuted.
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Assessment & collection
procedure
The income tax assessment
& collection procedure is laid down in Chapter IV of the Act. Article 67
of the Act, which speaks of provisional payment provides that a
profit-seeking enterprise, shall within one month from September 1 to
September 30 of each year, take one-half of the amount of tax payable as
declared in its profit-seeking enterprise income tax return filed in the
preceding year as the amount of provisional payment of tax and pay to the
public treasury. The enterprise is also supposed to file with the local
collection authority-in-charge, a declaration for provisional payment of
tax on a prescribed form along with the receipt of the provisional
payment.
Article 68 of the Act
provides that where a profit-seeking enterprise fails to make the
provisional tax payment within the period as specified in the act, an
interest is accruable at the banking rate for deposits from 1 October
until the date of the payment which is required to be collected together
with the amount of provisional tax payment.
If a profit-seeking
enterprise fails to make the provisional payment of tax before October 31,
the collection authority shall compute the amount of provisional tax
payable by it and issue a tax demand notice covering the provisional
payment plus one month’s interest to be calculated at the banking interest
rate for deposits to the said profit-seeking enterprise requiring the
profit-seeking enterprise to make the payment to the public treasury
within a period of fifteen days.
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Date of filing of income
tax returns by tax payer
Article 71 of the Act
requires every taxpayer to fill out and file to the local tax collection
authority, within the period from May 1 to May 31 of each year an annual
income return declaring therein the items and amounts that make up his
gross consolidated income (for an individual person) or the gross
profit-seeking income(for a profit-seeking enterprise) for the preceding
year together with the tax deductions/exemptions, and/or offsets, if any.
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Failure to file income
tax return within prescribed time limit
Article 79 of the Act
provides that where a taxpayer fails to file an annual income tax return
within the prescribed period, the collection authority is required to
serve on him a delinquent notice, requesting him to complete his annual
income tax return within fifteen days from the date of his receipt of the
notice. In the event of failure in filing the annual income tax return
after expiration of the prescribed period, the collection authority is
required to make provisional assessment of the amount of income and tax
payable on the basis of available taxation data or the profit standard of
the same trade and serve on the taxpayer the assessment notices along with
a tax demand notice..
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Resident and Non-resident
In the Act, the term
“person” is used to refer to a natural person or juristic person.
A Resident individual in
China means a natural person. who has domicile within the territory of the
Republic of China and resides at all times within the territory of the
Republic of China; or a person who has no domicile within the territory of
the Republic of China but resides within the territory of the Republic of
China for a period of more than 183 days.
A Non- Resident of China is
an individual other than a Resident as defined under the Act.
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Taxpayer and Tax withholder
“Taxpayer” is defined in
the Act as a person who is required under this Act to report or pay income
tax.
“Tax withholder” is defined
in the Act as a person who is required under this Act to withhold income tax
from his payment to be made to a taxpayer.
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Personal income tax:
Incomes chargeable to tax
Article 2 incorporates the
categories of personal incomes, which are chargeable to tax. They are;
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Wages and salaries;
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Operating income of privately owned
businesses;
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Income from contracted management or
leasehold management for enterprises or institutions;
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Remuneration for labor services;
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Income from author’s remuneration;
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Income from franchise royalties;
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Interest, dividends, and bonuses;
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Income from the lease of property;
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Income from the assignment of property;
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Accidental income;
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Any other income deemed taxable by the
Finance Department of the State Council.
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Income exempt from tax
Article 4 lays down
categories of personal incomes that are exempt from personal income tax:
They are;
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Pecuniary awards in such areas as science,
education, technology, culture, health, sports, and environmental
protection, bestowed by the provincial level people’s government,
ministries and commissions of the State Council, units at or above the
level of Army Commander in the Chinese People’s Liberation Army, foreign
organizations or international institutions;
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Interest from national government bonds or
financial bonds issued by the state;
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Interest on savings of a compulsory nature
made in accordance with act or ordinance;
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Subsidies and allowances given in accordance
with the unified regulations of the state;
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Welfare benefits, survivor’s pensions, and
relief payments;
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Insurance compensation;
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Military severance pay and demobilization
pay for servicemen and service women;
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Relocation allowances, severance pay,
retirement pay, retirement pay for veteran cadres, and living allowances
for retired veteran cadres in accordance with the unified regulations of
the state;
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Income of diplomatic representatives,
consular officers, and other personnel of foreign embassies and consulates
in China entitled to tax exemption as provided for in the applicable law
of the state;
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Income that is tax free as stipulated in the
international conventions entered into or agreements signed by the Chinese
government;
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Income that is tax free as approved by the
Finance Department of the State Council;
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Salaries of military personnel in active
service;
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Salaries of teachers and employees of
nurseries, kindergartens, public primary and junior high schools, and
private primary and junior high schools;
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Compensation for death or injury and that
obtained in pursuance of the National Compensation Act;
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Pension or compensation for death received
in accordance with applicable acts or regulations by the bereaved family
of a person who died in performing official duties.
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Payment for special disbursement, allowance
in kind or cash in lieu thereof and housing allowances received from the
government by public servants, teachers, military personnel, policemen and
laborers.
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Scholarships and subsidies granted by
governments of the Republic of China or foreign governments, international
institutions, educational, cultural, and scientific research organizations
or associations.
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Salaries paid by foreign governmental
agencies, organizations or educational and cultural institutions to
foreign technicians and professors of universities and colleges for
services rendered within the territory of the Republic of China under
technical cooperation or cultural and educational exchange agreements.
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Income derived by organizations or
societies, which are established for educational, cultural, public welfare
or charitable purposes.
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Rates of income tax
Different tax rates are
levied on various categories of personal income, including wages, salaries,
returns on investment, business profits and proceeds from property disposal
(equal to capital gains tax). Progressive tax rates on income start from 5%
for monthly income not exceeding RMB 500 to 45% for income exceeding RMB
100,000 per month. Foreign businesses operating in China currently benefit
from preferential corporate tax rates, introduced in the 1980s to encourage
foreign investment in China. However, these rates are to be repealed from
2007 onwards, with a 5-year transition period for companies already located
in China to allow them to adjust gradually to higher tax rates. Currently,
the tax rate for domestic Chinese companies is around 33%, but a new lower
flat rate is likely to be introduced.
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Personal income tax rates
Article 3 lays down the
personal income tax rates applicable in China.:
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Rate of tax on income earned from wages and salaries
Article 3.1 provides a system
of progressive tax rates in excess of specific amounts applicable to income
earned by way of wages and salaries. It also provides the rates which progress
from 5 percent to 45 percent
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Rate of tax on income earned from private business
There is a charge of
progressive tax rates in excess of specific amounts, at 5 percent to 35 percent,
applicable to the operating income of privately owned businesses and income from
contracted management or leasehold management for enterprises or institutions
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Rates of tax on passive incomes
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Article 3.5. provides that a proportional tax rate of 20
percent shall apply to the income from franchise royalties, interest, dividends,
bonuses, and income from the lease of property, income from the assignment of
property, accidental income and any other types of income.
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Rates of tax applicable to companies
As in 2005, a limited company
in China was liable for tax at the rate of 33%. This tax is made up of a 30%
national tax and a 3% local tax. Companies in China that are located in specific
legally defined areas pay company tax of 24%.
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Table of tax rates
The table herein below lists
out the personal income tax rates on Wages and Salaries
|
Level
|
Monthly Taxable
Income |
Tax Rate (%) |
|
1 |
Less than RMB
500 |
5 |
| 2
|
RMB
500.01 to 2000 |
10 |
| 3 |
RMB
2,000.01 to 5000 |
15 |
| 4 |
RMB
5,000.01 to 20,000 |
20 |
| 5 |
RMB
20,000.01 to 40,000 |
25 |
| 6 |
RMB
40,000.01 to 60,000 |
30 |
| 7 |
RMB
60,000.01 to 80,000 |
35 |
| 8 |
RMB
80,000.01 to 100,000 |
40 |
|
9 |
More than RMB
100,000 |
45 |
(Note: The monthly taxable
income referred to in this schedule means the balance of the monthly income
after deduction of RMB 800 (US$ 97) in expenses or the balance after the
deduction of additional deductible expenses, as stipulated in Article 6.)
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Personal income tax rates on income earned from private
business
The table herein below lists
the rates of tax on the operating income of privately owned businesses and
income from contracted management or leasehold management for enterprises or
institutions
|
Level |
Annual Taxable Income |
Tax
Rate (%) |
|
1 |
Less than RMB
5,000 |
5 |
| 2 |
RMB
5000.01 to 10,000 |
10 |
| 3 |
RMB
10,000.01 to 30,000 |
20 |
| 4 |
RMB
30,000.01 to 50,000 |
30 |
|
5 |
More than 50,000 |
35 |
(Note: The annual taxable
income referred to in this schedule means the balance of total income in each
year after deduction of costs, expenses, and losses in accordance with the
provisions of Article 6.)
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Personal income tax
China now adopts different tax
rates and pre-tax deduction rates on various types of personal income. Taxable
personal income falls into 11 major categories, including wages, salaries, and
returns of investment, business profits and proceeds from property disposal.
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Calculation of taxable income
Article 6 of the Chinese Income
Tax Act prescribes the method of calculation of taxable income
Article 6.1 stipulates that for
income from wages and salaries, the balance of monthly income after deduction of
RMB 800 (US$ 97) in expenses is the taxable income.
Article 6.2 prescribes that for
the operating income of privately owned businesses, the balance of the total
income in each tax year after deduction of costs, expenses, and losses is the
taxable income.
Article 6.3. provides that for
income from contracted management or leasehold management for enterprises or
institutions, the balance of the total income in each tax year after deduction
of necessary expenses is the taxable income.
Article 6.4 lays down that for
income from the remuneration of labor services, income from author’s
remuneration, income from franchise royalties, and income from the lease of
property, if the income received each time does not exceed RMB 4,000 (US$ 484),
then RMB 800 (US$97) is deductible as expenses; if it exceeds RMB 4,000, 20
percent shall be deducted as expenses. The balance in each case is the taxable
income.
Article 6.5 provides that for
income from the assignment of property, the balance of the income from such
assignment after deduction of the original value of the property and reasonable
expenses is the taxable income.
Article 6.6 stipulates that for
income from interest, dividends, bonuses, accidental income and other income,
the amount received each time is the taxable income. Personal contributions to
education and other undertakings for the public good are deductible from the
taxable income in accordance with the relevant regulations of the State Council.
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Taxation of Residents, Non-residents and Foreigners
According to Chinese law, both
residents and non-residents of the country are subject to income taxation.
Non-residents include foreigners and overseas persons from Hong Kong, Macao and
Taiwan, who have no residency in the country and live here less than one year.
They account for the majority of expatriates in China. There are uniform rates
for Chinese nationals and for foreigners, but expatriates who live in China for
less than a year are only required to pay tax on the income they earn within the
country, any income from outside of China is exempt from tax. Expatriates who
are resident in China for more than a year, but no more than five years, have to
pay tax on any income that is generated in, or remitted to China, while
expatriates who live in China for more than five years have to pay tax on all
their income, whether generated in China or elsewhere. Foreigners’ incomes
earned outside the country are exempt from income tax. Non-residents only have
to pay tax on the income they earn within the country.
For those taxpayers who are not
domiciled within Chinese borders, but receive wages and salaries from within
Chinese borders, and those taxpayers who are domiciled within Chinese borders,
but receive wages and salaries from outside of the Chinese borders, additional
deductible expenses may be determined according to their average income level,
living standard, and foreign exchange rate fluctuation. The scope of application
and scale of such additional deductible expenses shall be stipulated by the
State Council.
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Tax calculation of income earned by a resident from a foreign
source
As per Article 7, a taxpayer
receiving income from outside Chinese borders, shall be allowed to deduct from
his taxable amount, any personal income tax already paid outside Chinese
borders, provided that such deduction does not exceed the taxable amount of the
income received by this taxpayer from outside the borders as calculated
according to the stipulations hereof.
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Mode of tax payment
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As per Article 8, for the
purpose of personal income tax, the income earner is the taxpayer, and the unit
or individual paying such income is the withholding agent. Taxpayers who receive
wages and salaries from two or more sources and who have no withholding agents
shall file returns and pay taxes of their own accord.
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According to Article 9, the tax money deducted by the withholding agent each
month and the tax money payable by the self declared taxpayer should be paid
into the State Treasury within the first seven days of the following month. Tax
returns shall be submitted to the tax authorities.
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The tax money payable on the operating income of privately owned businesses
shall be calculated on a yearly basis and paid by advance monthly payment, to be
made by the taxpayer within the first seven days of the following month. The
account shall be settled and cleared within three months after the end of each
year, with any overcharge returned and any balance made up.
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Any taxpayer who receives his or her income from outside Chinese borders
shall pay tax into the State Treasury and submit tax returns to the tax
authorities within 30 days after the end of each
year.
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Article 10 provides that the calculation of all types of income shall be in
the local currency, renminbi. If any income is denominated in a foreign
currency, it shall be converted to reminbi according to the foreign exchange
rate set by the state foreign exchange administration authorities for purposes
of tax payment
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Investigation
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Initial investigation
Section 3 of the Act deals with Investigation procedures by the tax authorities
Article 80 of the Act provides that the collection authority shall, after
receipt of an annual income tax return, appoint a person to make investigation
on the return and determine the amount of income and tax payable. Where there is
great number of taxpayers in a locality, the collection authority-in-charge may
instead of conducting individual investigation, conduct random checks by trade
and determine the income standard of income of each trade. Where the amount of
income reported by a taxpayer in his return is above such standard, the reported
income shall be taken as the basis for taxation. However, income reported in the
return as lower than the standard shall be determined after an individual check.
For this purpose, opinions of trade associations can be sought in determining
income standards of taxpayers in the various trades.
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Service of notice
Article 81 of the Act provides that the collection authority-in-charge shall,
after arriving at it’s findings, work out and serve upon the taxpayer, a notice
showing the amount of tax leviable as determined.
Where the notice carries any erroneous entries or miscalculations, the taxpayer
may, within 10 days after receipt of the said notice, check with the collection
authority-in-charge or request for corrections.
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Production of account books and
documents
Article 83 requires a taxpayer to, in the course of an investigation or
reinvestigation conducted by the collection authority, produce account books and
related documents of evidence that will prove the amount of his income. Where
such account books and documents of evidence are not produced, the collection
authority may determine the amount of his income based on the available taxation
data or the profit standard of the same trade concerned
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Further investigation approval by MOF
Article 83-1 of the Act provides that if the collection authority or a tax
investigators designated by the Ministry of Finance discovers a taxpayer is
suspected of tax evasion or omission in substantial amounts, the authority or
investigator may, report to the Ministry of Finance for approval, to institute a
further investigation on the taxpayer’s net assets, fund flowing, and other
business data which are not conformable to the regular business practice. If the
result of further investigation, conducted by the collection authority or tax
investigator proves that the taxpayer has evaded and/or omitted taxes payment
the taxpayer shall be responsible for the submission of evidence favorable to
himself.
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Summons to tax-payers by collection authority
Article 84 of the Act authorizes the collection authority to, during
investigation or reinvestigation, call for the presence of the taxpayer or his
agent at the office of the collection authority to answer questions.
If the taxpayer is unable to present himself to answer questions at the
indicated time for justifiable reasons, he is required to submit a statement to
the collection authority within seven days from the date of receipt of the
notice.
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