Announcement on Individual Income Tax Issues Relevant to Employees of Law Firms

(Issued by the State Administration of Taxation on December 7 2012 and effective as of January 1 2013.)

SAT Announcement [2012] No.53

We hereby make the following announcement concerning individual income tax issues relevant to employees of law firms:

1. The rate at which expenditures and expenses that arise from the handling of cases are deducted from the shared revenue of lawyers, as employees of law firms, as specified in the second paragraph of Article 5 of the State Administration of Taxation, Circular on Operational Issues Relevant to the Levy of Individual Income Tax on the Income Received by Employees of Law Firms (Guo Shui Fa [2000] No.149), shall be revised from the current rate of up to 30% of the shared revenue received by a lawyer for the month in question to up to 35%.

Lawyers' expenses that arise from the handling of cases and are subject to the foregoing revenue sharing method, may not be listed as costs of the law firm again. The preceding paragraph shall be implemented from January 1 2013 to December 31 2015.

2. Article 8 of document Guo Shui Fa [2000] No.149 is repealed, the legal advisory fees or other monetary remuneration received by a lawyer from a recipient of legal services shall be added to the other income he/she receives from his/her law firm, and individual income tax shall be calculated and paid thereon in accordance with provisions.

3. When a partner calculates his/her taxable income, he/she shall deduct expenses on the strength of lawful and valid receipts and in accordance with the Individual Income Tax Law and relevant provisions. With respect to relevant expenses actually incurred in connection with business, but for which a partner is genuinely unable to provide lawful and valid receipts, the same may be deducted at the following rates after signature in confirmation by the concerned party: for the portion of individual annual business revenue not exceeding Rmb500,000, they may be deducted at the rate of 8%; for the portion of individual annual business revenue exceeding Rmb500,000, but less than or equal to Rmb1 million, they may be deducted at the rate of 6%; and for the portion of individual annual business revenue exceeding Rmb1 million, they may be deducted at the rate of 5%.

Where levy based on audit does not apply, the preceding paragraph shall not apply. The preceding paragraph shall be implemented from January 1 2013 to December 31 2015.

4. Expenses for professional training attended in accordance with the provisions of lawyers' associations that a lawyer bears personally may be deducted as incurred.

5. Rates for other expenses and expenditures incurred by law firms and by lawyers personally shall be handled in accordance with the provisions of documents such as the State Administration of Taxation, Circular on the Issuance of the <Measures for the Calculation of Individual Income Tax on the Individuals of Industrial and Commercial Proprietorships> (Trial Implementation) (Guo Shui Fa [1997] No.43).

6. This Announcement shall be effective as of January 1 2013.

(Issued by the State Administration of Taxation on December 7 2012 and effective as of January 1 2013.)

SAT Announcement [2012] No.53

We hereby make the following announcement concerning individual income tax issues relevant to employees of law firms:

1. The rate at which expenditures and expenses that arise from the handling of cases are deducted from the shared revenue of lawyers, as employees of law firms, as specified in the second paragraph of Article 5 of the State Administration of Taxation, Circular on Operational Issues Relevant to the Levy of Individual Income Tax on the Income Received by Employees of Law Firms (Guo Shui Fa [2000] No.149), shall be revised from the current rate of up to 30% of the shared revenue received by a lawyer for the month in question to up to 35%.

Lawyers' expenses that arise from the handling of cases and are subject to the foregoing revenue sharing method, may not be listed as costs of the law firm again. The preceding paragraph shall be implemented from January 1 2013 to December 31 2015.

2. Article 8 of document Guo Shui Fa [2000] No.149 is repealed, the legal advisory fees or other monetary remuneration received by a lawyer from a recipient of legal services shall be added to the other income he/she receives from his/her law firm, and individual income tax shall be calculated and paid thereon in accordance with provisions.

3. When a partner calculates his/her taxable income, he/she shall deduct expenses on the strength of lawful and valid receipts and in accordance with the Individual Income Tax Law and relevant provisions. With respect to relevant expenses actually incurred in connection with business, but for which a partner is genuinely unable to provide lawful and valid receipts, the same may be deducted at the following rates after signature in confirmation by the concerned party: for the portion of individual annual business revenue not exceeding Rmb500,000, they may be deducted at the rate of 8%; for the portion of individual annual business revenue exceeding Rmb500,000, but less than or equal to Rmb1 million, they may be deducted at the rate of 6%; and for the portion of individual annual business revenue exceeding Rmb1 million, they may be deducted at the rate of 5%.

Where levy based on audit does not apply, the preceding paragraph shall not apply. The preceding paragraph shall be implemented from January 1 2013 to December 31 2015.

4. Expenses for professional training attended in accordance with the provisions of lawyers' associations that a lawyer bears personally may be deducted as incurred.

5. Rates for other expenses and expenditures incurred by law firms and by lawyers personally shall be handled in accordance with the provisions of documents such as the State Administration of Taxation, Circular on the Issuance of the <Measures for the Calculation of Individual Income Tax on the Individuals of Industrial and Commercial Proprietorships> (Trial Implementation) (Guo Shui Fa [1997] No.43).

6. This Announcement shall be effective as of January 1 2013.