Implementing Regulations for the PRC Individual Income Tax Law (4th Revision)

 

(Promulgated by the State Council on December 18, 2018 and effective as of January 1 2019.)

 

Order of the State Council No.707

 

Article 1: These Regulations are formulated in accordance with the PRC Individual Income Tax Law (the Individual Income Tax Law).

 

Article 2: For the purposes of the Individual Income Tax Law, the phrase “has a residence in China” means habitually residing in China due to one's household registration, family or economic interest relationship; the phrase “income he/she derives both inside and outside China” means the income sourced in China and the income sourced from outside China respectively.

 

Article 3: Unless otherwise specified by the State Council's finance or tax department, the following income, whether the place of payment is in China or not, shall be income sourced in China:

(1) income from services provided in China because of the tenure of an office, employment, the performance of a contract, etc.;

(2) income from the lease of property to a lessee for use in China;

(3) income from the licensing for use in China of any kind of licensing rights;

(4) income from the assignment of property such as immovable property in China or the assignment in China of any other property; and

(5) income from interest, dividends and extra dividends derived from enterprises, public institutions, other organizations and tax resident individuals in China.

 

Article 4: Where the number of tax years an individual without a residence in China resides in China for at least 183 days in the aggregate is less than six in succession, he/she shall, subject to record filing with the competent tax authority, be exempt from paying individual income tax on income sourced from outside China and paid to him/her by a foreign entity or individual; if in any tax year in which he/she is resident in China for at least 183 days in the aggregate he/she is absent from China for more than 30 days on a single occasion, the succession of tax years in which he/she is resident in China for at least 183 days in the aggregate shall commence to count anew.

 

Article 5: For an individual who does not have a residence in China, but who resides in China for not more than 90 days in the aggregate in one tax year, that part of his/her income sourced in China that is paid by an employer outside China, and that is not borne by an establishment of that employer in China, shall be exempt from individual income tax.

 

Article 6: The scopes of the categories of income specified in the Individual Income Tax Law shall be as set forth below:

(1) The term “income from wages and salaries” means the wage, salary, bonus, year-end extra, profit share, subsidy, allowance and other income related to the tenure of an office or employment that is derived by an individual by virtue of the tenure of an office or employment.

(2) The term “income from remuneration for services” means income derived by an individual from engagement in services, including income derived from engaging in design, decoration, installation, drafting, laboratory testing, other testing, medical treatment, legal, accounting, advisory, lecturing, translation, proofreading, painting and calligraphic, carving, moving picture and television, sound recording, video recording, show, performance, advertising, exhibition and technical services, introduction services, brokerage services, agency services and other services.

(3) The term “income from author's remuneration” means income derived by an individual by virtue of the publication of his/her works in books, newspapers, periodicals, etc.

(4) The term “income from royalties” means income derived by an individual from provision of the right to use patent rights, trademark rights, copyrights, non-patented technology and other licensing rights. Income from provision of the right to use copyrights shall not include income from author's remuneration.

(5) The term “income from business operations” means:

(a) the income derived by a sole/family proprietor from his/her production and business activities, or the income sourced in China by the investor in a wholly individually-owned enterprise or an individual partner in a partnership from the production and operations of the wholly individually-owned enterprise or partnership registered in China;

(b) income derived by an individual from engagement in the provision of educational, medical, advisory and other service activities for consideration;

(c) income derived by an individual from contracting for or leasing the operation of an enterprise or public institution, or from assigning such contracts or leases; or

(d) income derived by an individual from engagement in other production and business activities.

(6) The term “income from interest, dividends and extra dividends” means income from interest, dividends, extra dividends, etc. that is derived by an individual by virtue of his/her possession of creditor's rights and share rights.

(7) The term “income from the lease of property” means income derived by an individual from the lease of immovable property, machinery, equipment, vehicles and vessels, and other property.

(8) The term “income from the assignment of property” means income derived by an individual from the assignment of negotiable securities, equity, property shares in a partnership, immovable property, machinery, equipment, vehicles and vessels, and other property.

(9) The term “casual income” means income derived by an individual from winning an award, prize and lottery and other income of an occasional nature.

Income derived by an individual for which the taxable category is difficult to determine shall be decided upon by the State Council's tax department.

 

Article 7: Measures for the levy and collection of individual income tax on income from the transfer of shares shall be separately formulated by the State Council and submitted to the Standing Committee of the National People's Congress for the record.

 

Article 8: The forms that individual income may take include cash, physical goods, negotiable securities or other manner of economic benefit. Where income takes the form of physical goods, the taxable income shall be calculated based on the price of the physical goods indicated on the voucher obtained therewith, but for physical goods without a voucher or the price indicated on the voucher for which is clearly too low, the taxable income shall be determined with reference to the market price therefor. Where income takes the form of negotiable securities, the taxable income shall be determined on the basis of the face value and market price thereof. Where income takes the form of another manner of economic benefit, the taxable income shall be determined with reference to the market price thereof.

 

Article 9: For the purposes of Item (2) of the first paragraph of Article 4 of the Individual Income Tax Law, the term “interest on treasury bonds” means interest derived by an individual by virtue of holding bonds issued by the Ministry of Finance of China, and the term “interest on financial bonds issued by the state” means interest derived by an individual by virtue of holding financial bonds issued with State Council approval.

 

Article 10: For the purposes of Item (3) of the first paragraph of Article 4 of the Individual Income Tax Law, the term “subsidies and allowances paid in accordance with uniform regulations of the state” means special government allowances and allowances for fellows, granted in accordance with State Council provisions, and other subsidies and allowances that are exempted from individual income tax as specified by the State Council.

 

Article 11: For the purposes of Item (4) of the first paragraph of Article 4 of the Individual Income Tax Law, the term “welfare benefits” means a cost-of-living subsidy paid to an individual according to relevant state provisions out of the welfare benefits allocated by an enterprise, public institution, state authority or social organization or out of its labor union funds, and the term “relief payments” means a hardship subsidy paid to an individual by the civil affairs department of a people's government at any level.

 

Article 12: For the purposes of Item (8) of the first paragraph of Article 4 of the Individual Income Tax Law, the “income of diplomatic agents, consular officials and other members of the embassies and consulates in China, which should be tax-exempt according to relevant laws” means income that is tax-exempt according to the PRC Regulations on Diplomatic Privileges and Immunities and the PRC Regulations on Consular Privileges and Immunities.

 

Article 13: The “other deductions determined by law” mentioned in Item (1) of the first paragraph of Article 6 of the Individual Income Tax Law include expenditures toward an enterprise annuity or occupational pension that complies with state provisions and paid by an individual, commercial health insurance complying with state provisions purchased by an individual or tax deferred old-age insurance, as well as other items that the State Council specifies as being deductible.

Special deductions, special expense deductions and other deductions determined by law shall be restricted to the taxable income of a tax-resident individual in one tax year, and if the same cannot be completely deducted in one tax year, they may not be carried forward and deducted in subsequent years.

 

Article 14: For the purposes of Items (2), (4) and (6) of the first paragraph of Article 6 of the Individual Income Tax Law, the term “each payment” shall respectively be determined by the following methods:

(1) in the case of income from remuneration for services, author's remuneration or royalties, the amount, if the revenue is derived in a lump sum, of that lump sum; and, if the revenue is of a continuing nature and pertains to the same project, the revenue derived in one month;

(2) in the case of income from the lease of property, the revenue derived in one month;

(3) in the case of income from interest, dividends and extra dividends, the revenue derived each time interest, dividends or extra dividends are paid; or

(4) in the case of casual income, each payment of such revenue obtained.

 

Article 15: For the purposes of Item (3) of the first paragraph of Article 6 of the Individual Income Tax Law, the term “costs and expenses” means the various direct expenditures and indirect expenses allocated and charged as costs incurred in the course of production and operational activities, as well as sales expenses, management expenses and financial expenses; the term “losses” means the fixed asset and inventory losses, damage, losses on property retired, transferred property losses, bad debt losses, losses due to a natural disaster or other such force majeure and other losses incurred in the course of production and operational activities.

If an individual who earns business income does not have integrated income, when calculating his/her taxable income each tax year, he/she shall deduct expenses in the amount of Rmb60,000, special deductions, special expense deductions and other deductions determined by law. Special expense deductions shall be deducted when carrying out final settlement.

Where production or operational activities are engaged in, but complete and accurate tax information is not provided, making it impossible to correctly calculate taxable income, the competent tax authority shall determine the taxable income or tax payable.

 

Article 16: For the purposes of Item (5) of the first paragraph of Article 6 of the Individual Income Tax Law, the term “the original value of the property” shall be determined by the following methods:

(1) in the case of negotiable securities, the price for which they were purchased and related expenses paid according to provisions at the time of purchase;

(2) in the case of structures, the construction expenses or purchase price, and other related expenses;

(3) in the case of land use rights, the amount paid to acquire the land use rights, land development expenses and other related expenses; or

(4) in the case of machinery, equipment, vehicles and vessels, the purchase price, freight, installation expenses and other related expenses.

In the case of other property, the original value of the property shall be determined by reference to the methods specified in the preceding paragraph.

If a taxpayer fails to provide complete and accurate vouchers concerning the original value of the property and is unable to determine the original value of the property by the methods specified in the first paragraph hereof, the original value of the property shall be determined by the competent tax authority.

For the purposes of Item (5) of the first paragraph of Article 6 of the Individual Income Tax Law, the term “reasonable expenses” means relevant tax and fees paid in accordance with provisions at the time of sale of the property.

 

Article 17: Tax on income from the assignment of property shall be calculated and paid based on the balance remaining after subtracting the original value of the property and reasonable expenses from the revenue amount of a single assignment of property.

 

Article 18: If the same item of revenue is derived by two or more individuals, tax thereon shall be calculated and paid separately on the revenue derived by each individual in accordance with the Individual Income Tax Law.

 

Article 19: For the purposes of the third paragraph of Article 6 of the Individual Income Tax Law, the phrase “an individual donates a part of his/her income to a charitable cause, such as education, support of the poor and aiding those in difficulty” means that the individual donates a part of his/her income to a charitable cause, such as education, support of the poor and aiding those in difficulty through a social organization of a public benefit nature or a state authority in China; the term “taxable income” means the taxable income before calculation of the deductible donation.

 

Article 20: The tax payables on the integrated income and income from business operations derived by a tax-resident individual from inside and outside China shall be calculated together respectively, and the tax payables on other income derived by him/her from inside and outside China shall be calculated separately respectively.

 

Article 21: For the purposes of Article 7 of the Individual Income Tax Law, the term “the individual income tax amount he/she paid abroad” means the income tax amount payable, and actually paid, on income of a tax-resident individual sourced from outside China, in accordance with the law of the country (region) from which that income was sourced.

“His/her tax payable on his/her foreign income as calculated in accordance herewith” as mentioned in Article 7 of the Individual Income Tax Law is the limit of the income tax amount on the integrated income, business income and other income paid abroad that may be deducted by a tax-resident individual (the Deduction Limit). Unless otherwise provided by the State Council's finance or tax department, the total of the Deduction Limit for integrated income, the Deduction Limit for business income and the Deduction Limit for other income sourced from one country (region) outside China is the Deduction Limit for the income sourced from that country (region).

If the actual amount of individual income tax paid by a tax-resident individual in a country (region) outside China is less than the Deduction Limit for the income sourced from that country (region) calculated in accordance with the preceding paragraph, tax shall be paid in China on the difference therefrom. If the amount exceeds the Deduction Limit for the income sourced from that country (region), the portion in excess may not be deducted against the amount of tax payable for the tax year in question; however, such excess portion may be deducted retroactively from the balance remaining in the Deduction Limit for the income sourced from that country (region) in subsequent tax years, for a maximum period of five years.

 

Article 22: Where a tax-resident individual applies to deduct the individual income tax amount paid by him/her abroad, he/she shall provide the relevant tax payment receipt for the tax year in which the tax was paid issued by the foreign tax authority.

 

Article 23: The interest specified in the second paragraph of Article 8 of the Individual Income Tax Law shall be calculated based on the benchmark renminbi loan rate during the back tax period posted by the People's Bank of China on the last day of the tax filing period for the tax amount in question and charged on a daily basis from the day immediately following the date on which the tax filing period expires until the date on which the time limit for paying the back taxes expires. If a taxpayer pays the back taxes before the expiration of the time limit for the payment thereof, interest shall be charged until the date on which the back taxes are paid.

 

Article 24: When a withholding agent makes taxable payments to an individual, it shall withhold tax in accordance with the Individual Income Tax Law, pay the tax over to the treasury in a timely manner, and keep special records for future inspection.

For the purposes of the preceding paragraph, the term “payments” includes payments in cash, payments by remittance, payments by account transfer, and payments in the form of negotiable securities, physical goods and other forms.

 

Article 25: Circumstances where integrated income is earned and the carrying out of final settlement is required include:

(1) one where integrated income is derived from at least two sources and the balance of the amount of the integrated income for the year remaining after the deduction of special deductions exceeds Rmb60,000;

(2) one where one or more categories of income from remuneration for services, income from author's remuneration or income from royalties is(are) earned and the balance of the amount of the integrated income for the year remaining after the deduction of special deductions exceeds Rmb60,000;

(3) one where the amount of tax paid in advance for the tax year is less than the tax payable; or

(4) one where the taxpayer applies for a tax refund.

When a taxpayer applies for a tax refund, he/she shall provide details of a bank account opened in China, and in the place where he/she carries out final settlement he/she shall carry out the procedures for refund of the tax from the treasury.

The specific measures for final settlement shall be formulated by the State Council's tax department.

 

Article 26: For the purposes of the second paragraph of Article 10 of the Individual Income Tax Law, the term “withholding filings on the full amount for all personnel” means the relevant information on all individuals to whom the withholding agent has paid income, the amount of income paid, deductible items and amounts, the specific amounts and total amount of tax withheld and other tax-related information and materials that the withholding agent submits to the competent tax authority within the first 15 days of the month following the withholding of such tax.

 

Article 27: The specific measures concerning the locations in which a taxpayer is to file a tax return and other relevant matters shall be formulated by the State Council's tax department.

 

Article 28: A tax-resident individual who earns income from a wage or salary may provide to his/her withholding agent information on his/her special expense deductions so that when the withholding agent withholds tax, it deducts his/her special expense deductions. If a taxpayer earns income from a wage or salary simultaneously from at least two sources and has the withholding agent deduct his/her special expense deductions, he/she may elect to deduct any one special expense deduction item from the income from only one of the sources.

A tax-resident individual who earns income from remuneration for services, income from author's remuneration or income from royalties shall provide relevant information to the tax authority at final settlement to deduct his/her special expense deductions.

 

Article 29: A taxpayer may entrust his/her withholding agent or another entity or individual to carry out final settlement for him/her.

 

Article 30: A withholding agent shall calculate and carry out a withholding filing based on the information provided by the taxpayer, and may not revise the information provided by the taxpayer without his/her authorization.

If a taxpayer discovers that the personal information, income, withheld tax amount, etc. provided or given at the time of the withholding filing by his/her withholding agent is inconsistent with reality, he/she has the right to demand that the withholding agent revise the same. If the withholding agent refuses to do so, the taxpayer shall report the same to the tax authority and the tax authority shall deal with the same in a timely manner.

A taxpayer and his/her withholding agent shall preserve documentation relating to special expense deductions in accordance with provisions. The tax authority may carry out random checks of special expense deduction information provided by taxpayers, the specific measures for which shall be formulated separately by the State Council's tax department. If the tax authority discovers that a taxpayer has provided false information, it shall order him/her to rectify the matter and notify his/her withholding agent. If the circumstances are serious, the relevant authority shall deal with the matter in accordance with the law, input the same in the integrity information system and impose joint sanctions.

 

Article 31: If there are errors in the final settlement information provided by a taxpayer when applying for a tax refund, the tax authority shall notify him/her to correct the same. If the taxpayer corrects the same, the tax authority shall carry out the tax refund in a timely manner.

If a withholding agent fails to pay withheld tax into the treasury, the same shall not affect a taxpayer's application for a tax refund in accordance with provisions, and the tax authority shall carry out the tax refund on the strength of the relevant documentation provided by the taxpayer.

 

Article 32: If income is in a currency other than renminbi, the taxable income shall be calculated by translating the same into renminbi at the central parity rate of renminbi on the last day of the month preceding the carrying out of the tax filing or withholding filing. Where final settlement is carried out after the end of a tax year, income in a currency other than renminbi on which tax has been paid in advance on a monthly, quarterly or per occurrence basis, the same shall not be translated again; for the portion of income on which back taxes are owed, the taxable income shall be calculated by translating the same into renminbi at the median renminbi exchange rate on the last day of the preceding tax year.

 

Article 33: When a tax authority pays the handling fee to a withholding agent in accordance with Article 17 of the Individual Income Tax Law, it shall issue a refund notice; the withholding agent shall carry out the treasury refund procedure in accordance with provisions on the administration of the national treasury on the strength of the refund notice.

 

Article 34: The models for individual income tax returns, individual income tax withheld returns and individual income tax payment receipts shall be formulated by the State Council's tax department in a unified manner.

 

Article 35: Matters concerning the levy and collection of individual income tax from personnel in the army shall be carried out in accordance with relevant provisions.

 

Article 36: These Regulations shall be effective as of January 1, 2019.