PRC Individual Income Tax Law (5th Revision)

Individuals who are neither domiciled nor resident in the PRC, or who are not domiciled and reside for less than one year in the PRC, shall pay individual income tax in accordance with this Law on income derived from sources inside the PRC.

Article 2: Individual income tax shall be paid on the following categories of income:

(1) income from wages and salaries;

(2) income derived by individual industrialists and merchants from production and business;

(3) income from contracting for or leasing the operation of enterprises or institutions;

(4) income from remuneration for personal services;

(5) income from author's remuneration;

(6) income from royalties;

(7) income from interest, dividends and extra dividends;

(8) income from the lease of property;

(9) income from the assignment of property;

(10) casual income; and

(11) other income determined taxable by the finance department of the State Council.

Article 3: Individual income tax rates:

(1) income from wages and salaries shall be subject to tax at progressive rates ranging from 5% to 45% (a table of tax rates is attached);

(2) income derived by individual industrialists and merchants from production and business and income from contracting for or leasing the operation of enterprises or institutions shall be subject to tax at progressive rates ranging from 5% to 35% (a table of tax rates is attached);

(3) income from author's remuneration shall be subject to tax at a proportional rate of 20%, and the amount of tax payable shall be reduced by 30%;

(4) income from remuneration for personal services shall be subject to tax at a proportional rate of 20%. If a payment received as income from remuneration for personal services is abnormally high, the tax rate may be increased. The specific measures for such increases shall be determined by the State Council;

(5) income from royalties, interest, dividends and extra dividends, income from the lease of property, income from the assignment of property, casual income and other income shall be subject to tax at a proportional rate of 20%.

Article 4: The following categories of income shall be exempt from individual income tax:

(1) pecuniary awards in the fields of science, education, technology, culture, public health, sports, environmental protection, etc, granted by provincial people's governments, ministries and commissions under the State Council, work units of the Chinese People's Liberation Army of army level and above and by foreign or international organizations;

(2) interest on national debt obligations and on other financial bonds issued by the state;

(3) allowances and subsidies paid in accordance with uniform regulations of the state;

(4) welfare benefits, disabled person's or survivor's pensions, and relief payments;

(5) insurance indemnifications;

(6) payments for transfer to civilian work and demobilization pay of members of the armed forces;

(7) settling-in payments, severance payments, retirement wages, and wages or cost-of-living subsidies of personnel who have left their jobs on a permanent basis in order to rest and recuperate, that are paid to cadres, staff and workers in accordance with uniform regulations of the state;

(8) income of diplomatic agents, consular officials and other members of the embassies and consulates in China, where tax-exempt under relevant Chinese laws;

(9) tax-exempt income as stipulated in international conventions to which the Chinese government has acceded or agreements that the Chinese government has entered into; and

(10) income approved as tax-exempt by the finance department of the State Council.

Article 5: Upon approval, individual income tax may be reduced in any of the following cases:

(1) the income is derived by disabled persons, aged persons who are unsupported or members of a revolutionary martyr's family;

(2) major losses are suffered as a result of a serious natural disaster; or

(3) other cases in which reduction is approved by the finance department of the State Council.

Article 6: Calculation of taxable income:

(1) as for income from wages and salaries, the taxable income shall be the monthly income less a deduction of Rmb2,000 for expenses;

(2) as for income derived by family proprietors from production and business, the taxable income shall be the gross revenue for each tax year less costs, expenses and losses;

(3) as for income from contracting for or leasing the operation of enterprises or institutions, the taxable income shall be the gross revenue for each tax year less the necessary expenses;

(4) as for income from remuneration for personal services, income from author's remuneration, income from royalties and income from the lease of property, the taxable income shall be the amount of each single payment less a deduction of Rmb800 for expenses if the payment does not exceed Rmb4,000 and less a deduction of 20% for expenses if the payment is more than Rmb4,000;

(5) as for income from the assignment of property, the taxable income shall be the proceeds of the assignment less the original value of the property and reasonable expenses;

(6) as for income from interest, dividends and extra dividends, casual income and other income, the taxable income shall be the amount of each payment.

That portion of their income that individuals donate to educational and other public welfare undertakings shall be deducted from their taxable income in accordance with the relevant regulations of the State Council.

As for taxpayers who are not domiciled in the PRC but derive income from wages and salaries from sources inside the PRC and taxpayers who are domiciled in the PRC and derive income from wages and salaries from sources outside the PRC, extra deductions for expenses may be determined on the basis of their average income level and standard of living and changes in the exchange rates. The scope of applicability and standards of such extra deductions shall be determined by the State Council.

Article 7: Taxpayers shall be allowed to deduct from their amount of tax payable the amount of individual income tax paid outside the PRC on income derived from sources outside the PRC. The amount deducted, however, may not exceed the amount of tax payable computed on the income derived from sources outside the PRC in accordance with the provisions of this Law.

Article 8: As for the individual income tax, the income earner shall be the taxpayer and the work unit or individual paying the income shall be the withholding agent. Where income of a taxpayer exceeds the amount specified by the State Council, or where a taxpayer derives income from wages and salaries in two or more places or does not have a withholding agent, or in other circumstances specified by the State Council, the taxpayer shall file his/her tax return in accordance with state provisions. Withholding agents shall submit withholding reports on the full amount for all personnel in accordance with state provisions.

Article 9: Taxes withheld each month by withholding agents and taxes payable each month by taxpayers personally filing tax returns and paying tax shall be paid into the national treasury, and a tax return shall be filed with the tax authorities, within the first seven days of the following month.

The tax on income from wages and salaries shall be computed and imposed on a monthly basis. The withholding agents or taxpayers shall pay such tax into the national treasury, and file a tax return with the tax authorities, within the first seven days of the following month. The tax on income from wages and salaries in specific industries may be computed and imposed by the method of calculation on an annual basis and prepayment in monthly instalments; the specific measures therefore shall be determined by the State Council.

The tax on income derived by individual industrialists and merchants from production and business shall be calculated on an annual basis and prepaid in monthly instalments. The taxpayers shall make such prepayments within the first seven days of the following month. An annual settlement shall be made within three months after the end of the year, at which time excess payments shall be refunded and deficiencies shall be made good.

The tax on income from contracting for or leasing the operation of enterprises or institutions shall be calculated on an annual basis. The taxpayers shall pay such tax into the national treasury, and file a tax return with the tax authorities, within 30 days after the end of the year. If the taxpayer derives the income from contracting for or leasing the operation of an enterprise or institution in instalments during the year, he/she shall make a prepayment within seven days after each payment of income is derived, and an annual settlement shall be made within three months after the end of the year, at which time excess payments shall be refunded and deficiencies shall be made good.

Taxpayers who derive income from sources outside the PRC shall pay the tax payable into the national treasury, and file a tax return with the tax authorities, within 30 days after the end of the year.

Article 10: All income shall be computed in renminbi. Tax on income in foreign currency shall be paid by converting the amount of income into renminbi according to the exchange rate determined by the state agency for exchange control.

Article 11: Withholding agents shall be paid a commission at the rate of 2% of the tax withheld.

Article 12: The levy, reduction and waiving of individual income tax on interest earned on savings deposits and the specific measures thereof shall be stipulated by the State Council.

Article 13: The collection of individual income tax shall be administered in accordance with the PRC Law on the Administration of the Levy and Collection of Taxes.

Article 14: Implementing rules shall be formulated by the State Council on the basis of this Law.

Article 15: This Law shall be effective as of the date of promulgation.

Table of Individual Income Tax Rates (1)

(Applicable to income from wages and salaries)

(Note: For the purposes of this Table, the term “monthly taxable income” means the monthly income less a deduction of Rmb2,000 for expenses or less extra deductions for expenses, in accordance with Article 6 hereof.)

Table of Individual Income Tax Rates (2)

(Applicable to income derived by family proprietors from production and business and income from contracting for or leasing the operation of enterprises or institutions.)

(Note: For the purposes of this Table, the term “annual taxable income” means the gross revenue for each tax year less costs, expenses and losses in accordance with Article 6 hereof.)