Ministry of Finance and State Administration of Taxation, Implementing Regulations for the PRC Individual Income Tax Law (Draft Amendments for Comments)

(2)        income derived from the transfer of immovable property or land use rights located in China; income derived from the transfer of equity assets arising from investment in an enterprise, public institution or other economic organization located in China; and income derived from the transfer in China of movable assets or other property; and

(3)        author's income or casual income paid or borne by an enterprise, public institution, other economic organization or tax-resident individual located in China (Article 3).

Where the consecutive number of years in which a tax-resident individual without a residence in China has resided in China for an aggregate of least 183 days is less than five, or where the consecutive number of years is at least five but, during that period, he/she was away from China for more than 30 days on one occasion, he/she shall, following record filing with the competent tax authority, pay individual income tax only on that portion of his/her income derived from outside China that is paid by an enterprise, public institution, other economic organization or tax-resident individual in China. Where the consecutive number of years in which a taxpayer has resided in China for an aggregate of least 183 days is at least five and during those five years he/she was not away from China for more than 30 days on one occasion, he/she shall pay individual income tax on all of his/her income derived from outside China from the sixth year if he/she is tax-resident in China for an aggregate of at least 183 days during that year (Article 4).

For the purposes of Item (1) of the first paragraph of Article 8 of the Individual Income Tax Law, the term “affiliated party” means an individual, enterprise or other economic organization that has any of the following affiliated relationships with the individual:

(1)        a spousal, direct blood relative, sibling, or other foster, maintenance or support relationship;

(2)        a relationship of direct or indirect control by means of funding, operations, procurement/sale, etc.; or

(3)        another economic interest relationship.

If an affiliated relationship as specified in Item (1) of the preceding paragraph exists between individuals and if an affiliated relationship as specified in Item (2) or Item (3) of the preceding paragraph exists between one of those individuals and an enterprise or other organization, the other individual is deemed an affiliated party of the enterprise or other organization.

For the purposes of Item (1) of the first paragraph of Article 8 of the Individual Income Tax Law, the term “arm's length principle” means the principle observed by transaction parties without an affiliated relationship in the dealings conducted on the basis of fair transaction prices and regular business practices (Article 25).

For the purposes of Item (2) of the first paragraph of Article 8 of the Individual Income Tax Law, the term “control” means:

(1)        that a tax-resident individual and a tax-resident enterprise each directly or indirectly hold at least 10% of the voting shares of a foreign enterprise and they jointly hold at least 50% of its shares; or

(2)        that, although the shareholding percentages of the tax-resident individual and tax-resident enterprise do not reach the thresholds specified in Item (1), they have substantive control of the foreign enterprise by means of shares, funding, operations, procurement/sales, etc.

For the purposes of Item (2) of the first paragraph of Article 8 of the Individual Income Tax Law, the term “the actual tax burden is obviously low” means that the actual tax burden is less than 50% of the tax rate specified in the PRC Enterprise Income Tax Law (Article 26).