Regulations for Implementation of the Law of the PRC on Individual Income Tax

(Promulgated by No. 142 Order of the State Council of the PRC on January 28th, 1994. Revised for the first time according to the Decision of the State Council on modifying the Regulations for Implementation of the Law of the PRC on Individual Income Tax on December 19th, 2005. Revised for the second time according to the Decision of the State Council on modifying the Regulations for Implementation of the Law of the PRC on Individual Income Tax on February 18th, 2008. Revised for the third time according to the Decision of the State Council on modifying the Regulations for Implementation of the Law of the PRC on Individual Income Tax on July 19th, 2011)

Article 1 These Regulations are formulated in accordance with the Law of the People's Republic of China on Individual Income Tax (hereinafter referred to as the "Tax Law").

Article 2 For the Purposes of the first paragraph of Article 1of the Tax Law, the term "individuals who have domicile in China" shall mean individuals who by reason of their permanent registered address, family or economic interests, habitually reside in the People's Republic of China.

Article 3 For the purposes of the first paragraph of Article 1 of the Tax Law, the term "have resided forChina" shall mean to have resided within the People's Republic one year or more inof China for 365 days in a tax year. No deductions shall be made from that number of days for temporary trips out of the People's Republic of China.

For the purposes of the preceding paragraph, the term "temporary trips out of the People's Republic of China" shall mean absence from the People's Republic of China for not more than 30 days during a single trip, or not more than a cumulative total of 90 days over a number of trips, within the same tax year.

Article 4 For the purposes of the first and second paragraph of Article 1 of the Tax Law, the term "income derived from within China" shall mean income the source of which is inside the People's Republic of China, and the term "income derived from outside China" shall mean income the source of which is outside the People's Republic of China.

Article 5 The following income, whether the place of payment is inside the People's Republic of China or not, shall be income derived from sources inside the People's Republic of China.

(1) income from personal services provided inside the People's Republic of China because of tenure of an office, employment, or performance of a contract, etc.;

(2) income from the lease of property to a lessee for use inside the People's Republic of China;

(3) income from the assignment of property such as buildings, land use rights China or the assignment inside the People's Republic, etc. inside the People's Republic of China of other property;

(4) income from the licensing for use inside the People's Republic of China of various licensing rights;

(5) income from interest, dividends and bonuses derived from companies, enterprises and other economic organizations or individuals inside the People's Republic of China.

Article 6 For income derived from sources outside the People's Republic of China of individuals who do not have a domicile in the People's Republic of China, but reside for not less than one year but not more than five years, subject to the approval of the competent tax authorities, individual income tax may be paid only on that part which was paid by companies, enterprises and other economic organizations or individuals which are inside the People's Republic of China. Individuals who reside for more than five years shall, commencing from the sixth year, pay individual income tax on the whole amount of income derived from sources outside the People's Republic of China.

Article 7 For individuals who are not domiciled in the People's Republic of China, but who reside inside the People's Republic of China consecutively or accumulatively for not more than 90 days in any tax year, their income derived from sources inside the People's Republic of China which is paid by an employer outside the People's Republic of China, and which is not borne by the employer's institution or establishment within the People's Republic of China, shall be exempt from individual income tax.

Article 8 The scope of the categories of income mentioned in Article 2 of the Tax Law shall be as set forth below:

(a) the term "income from wages and salaries" shall mean wages, salaries, bonuses, year-end extras, labor melon-cutting, subsidies or allowances that is derived by individuals by virtue of the tenure of an office or employment and other income related to the tenure of an office or employment.

(b) the term "income from production or business operations derived by individual industrial and commercial households" shall mean the following:

(i) income derived by individual industrial and commercial households from engagement in production and business operations in industry, handicrafts, construction, transportation, commerce, food and beverage industry, service industry, repair industry and other industries;

(ii) income derived by individuals from engagement, with approval of the relevant government departments and after having obtained licenses, in the provision of educational, medical, advisory and other services for consideration;

(iii) other income derived by individuals from engagement in individual industrial and commercial production and business operations;

(iv) all taxable income deprived by the above individual industrial and commercial households and individuals, which is related to their production and business operations.

(c) the term "income from contracted or leased operation of enterprises or institutions" shall mean income derived by individuals from contracted or leased operation, or from subcontracting or subleasing, including income of a wage or salary nature derived by individuals on a monthly basis or from time to time.

(d) the term "income from remuneration for personal services" shall mean income derived by individuals from engagement in design, decoration, installation, drafting, assay, testing, medical treatment, legal, accounting, advisory, lecturing, news, broadcasting, 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 personal services.

(e) the term "income from author's remuneration" shall mean income derived by individuals by virtue of the publication of their works in books, newspapers and periodicals.

(f) the term "income from royalties" shall mean income derived by individuals 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.

(g) the term "income from interest, dividends and bonuses" shall mean income from interest, dividends and bonuses that is derived by individuals by virtue of their possession of creditor's rights and share rights.

(h) the term "income from lease of property" shall mean income derived by individuals from the lease of buildings, land use rights, machinery, equipment, vehicles, ships and other property.

(i) the term "income from transfer of properly" shall mean income derived by individuals from the assignment of negotiable securities, share rights, structures, land use rights, machinery, equipment, means of transportation and other property.

(j) the term "contingent income" shall mean income derived by individuals from winning prizes, awards and lotteries and other income of occasional nature.

(2) Income derived by individuals for which the taxable category is difficult to determine shall be decided upon by the competent tax authorities.

Article 9 The measures for the levy and collection of individual income tax on income from the transfer of shares shall be separately formulated by the Ministry of Finance under the State Council and be implemented upon approval by the State Council.

Article 10 Individual income shall be in cash, in kind, negotiable securities and other forms of economic benefits. If the income is in kind, the amount of taxable income shall be determined according to the price specified on the voucher obtained. If there is no such voucher or the price specified on the voucher is obviously on the low side, the competent tax authoritiesshall determine the amount of taxable income by reference to the market price. If the income is in the form of negotiable securities, the amount of taxable income shall be determined by the competent tax authorities according to the nominal value and the market price. If the income is in other forms of economic benefits, the market price shall be referred to assess the amount of taxable income.

Article 11 For the purposes of Subparagraph (4) of Article 3 of the Tax Law, the phrase "a specific payment of income from remuneration for personal service is excessively high" shall mean a payment received by an individual as remuneration for personal service with an amount of taxable income exceeding ￥20,000.

That part of taxable income as mentioned in the preceding paragraph which exceeds ￥20,000 but does not exceed ￥50,000 shall, after the amount of tax payable is calculated in accordance with the Tax Law, be subject to an additional levy at the rate of 50 percent of the amount of tax payable. That part which exceeds ￥50,000 shall be subject to an additional levy at the rate of 100 percent of tax payable.

Article 12 For the purposes of Subparagraph (2) of Article 4 of the Tax Law, the term "interest on national debt" shall mean interest income derived by individuals by virtue of holding bonds issued by the Ministry of Finance of the People's Republic of China; the term "interest on financial bonds issued by the State" shall mean interest income derived by individuals by virtue of holding financial bonds issued upon approval of the State Council.

Article 13 For the purposes of Subparagraph (3) of Article 4 of the Tax Law, the term "subsidies and allowances paid in accordance with the uniform regulations of the State" shall mean special government subsidies, academician subsidies, and subsidies for senior academicians issued in accordance with the regulations of the State Council and other subsidies and allowances that are exempt from individual income tax by the State Council regulations.

Article 14 For the purposes of Subparagraph (4) of Article 4 of the Tax Law, the term "welfare benefits" shall mean cost-of-living subsidies paid to individuals according to the relevant State regulations out of the welfare benefits or labor union funds allocated by enterprises, institutions, state organs and public organizations, and the term "relief payment" shall mean hardship subsidies paid to individuals by the authority for civil affairs of the government at various levels.

Article 15 For the purposes of Subparagraph (8) of Article 4 of the Tax Law, the term "income derived by the diplomatic agents, consular officers and other personnel of the embassy or consulate resided in China who are exempt from tax under the provisions of the relevant laws of China" shall mean income that is tax-exempt under theRegulations of the People's Republic of China on Diplomatic Privileges and Immunities and the Regulations of the People's Republic of China on Consular Privileges and Immunities.

Article 16 The range and time limit of reductions in individual income tax referred to in Article 5 of the Tax Law shall be stipulated by the people's government of a province, autonomous region and municipality directly under the central government.

Article 17 For the purposes of Subparagraph (2) of the first paragraph of Article 6 of the Tax Law, the terms "costs" and "expenses" shall mean all direct expenditures and indirect expenses allocated as costs as well as marketing expenses, administrative expenses and financial expenses incurred by taxpayers while engaging in production and business operations; the term "losses" shall mean all non-operating expenditures incurred by taxpayers in the course of production and business.

If a taxpayer engaging in production or business operations fails to provide complete and accurate tax information and is unable to correctly calculate the amount of taxable income, his amount of taxable income shall be assessed by the competent tax authorities.

Article 18 For the purposes of Subparagraph (3) of the first paragraph of Article 6 of the Tax Law, the term "the gross income in a tax year" shall mean the share of the operating profit or the income of a wage or salary nature derived by the taxpayer according to the contract for the contracted or leased operation and the term "deduction of necessary expenses" shall mean a monthly deduction of ￥800.

Article 19 For the purposes of Subparagraph (5) of the first paragraph of Article 6 of the Tax Law, the term "the original value of the property" shall mean:

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

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

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

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

(e) in the case of other property, the original value shall be determined by reference of the above methods.

(2) If a taxpayer fails to provide complete and accurate vouchers concerning the original value of the property and is unable to correctly calculate the original value of the property, the original value of the property shall be assessed by the competent tax authorities.

Article 20 For the purposes of Subparagraph (5) of the first paragraph of Article 6of the Tax Law, the term "reasonable expenses" shall mean the relevant expenses paid in accordance with regulations at the time of selling the property.

Article 21 For the purposes of Subparagraph (4) and (6) of the first paragraph of Article 6 of the Tax Law, the term "each payment" shall mean:

(1) in the case of income from remuneration for personal service, if the income is derived in a lump sum, the amount of that lump sum; if the income is of a continuing nature and pertains to the same project, the income derived during one month;

(2) in the case of income from author's remuneration, the income derived on each instance of publication;

(3) in the case of income from royalties, the income derived from each instance of licensing a licensing right;

(4) in the case of income from the lease of property, the income derived during one month;

(5) in the case of income from interest, dividends and bonuses, the income derived each time interest, dividends or bonuses are paid;

(6) in the case of contingent income, each payment of such income obtained.

Article 22 Tax on income from the assignment of property shall be calculated and paid on the proceeds of a single assignment of property less the original value of the property and reasonable expenses.

Article 23 If the income is derived from the same item by two or more individuals, tax thereon shall be calculated and paid separately on the income derived by each individual after the deduction of expenses in accordance with the Tax Law.

Article 24 For the purposes of the second paragraph of Article 6 of the Tax Law, the term "individual income donated to educational and other public welfare undertakings" refers to the donation by individuals of their income to educational and other public welfare undertakings and to areas suffering from serious natural disasters or poverty, through public organizations or state organs within the territory of the People's Republic of China.

That part of the amount of donations which does not exceed 30 percent of the amount of taxable income declared by a taxpayer may be deducted from his amount of taxable income.

Article 25 The premiums for the basic endowment insurance, the basic health care insurance and the unemployment insurance, and the accumulation funds for housing paid by units for individuals or by individuals themselves shall be, in accordance with the State regulations, deducted from the amount of taxable income of taxpayers.

Article 26 For the purposes of the third paragraph of Article 6 of the Tax Law, the term "income from wages and salaries from outside China" shall mean income from wages and salaries derived from the tenure of an office or employment outside the People's Republic of China.

Article 27 For the purposes of the third paragraph of Article 6 of the Tax Law, the term: "additional deductions for expenses" shall mean a monthly deduction for expenses in the amount specified in Article 29 of these Regulations in addition to the deduction of ￥3500 for expenses.

Article 28 For the purposes of the third paragraph of Article 6 of the Tax Law, the term "the scope of applicability of such additional deductions for expenses" shall mean:

(1) foreigners working in foreign investment enterprises and foreign enterprises within the territory of the People's Republic of China;

(2) foreign experts hired to work in enterprises, institutions, public organizations and state organs within the territory of the People's Republic of China;

(3) individuals who are domiciled in the People's Republic of China and derive income from wages and salaries by virtue of their tenure of an office or employment outside the People's Republic of China; and

(4) other personnel as determined by the ministry of finance and tax authority in charge under the State Council.

Article 29 The standard for additional deductions for expenses mentioned in the third paragraph of Article 6 of the Tax Law shall be ￥1300.

Article 30 Overseas Chinese and compatriots in Hong Kong, Macao and Taiwan shall be treated by reference to Article 26, 27 and 28 hereof.

Article 31 Individuals who are domiciled in the People's Republic of China, or who are not domiciled but have resided in the People's Republic of China for at least one year shall calculate separately the amount of tax payable for income derived from inside and outside the People's Republic of China.

Article 32 For the purposes of Article 7 of the Tax Law, the term "individual income tax paid to foreign tax authorities" shall mean the amount of tax payable and actually paid on income derived by a taxpayer from sources outside the People's Republic of China, according to the law of the country or region from which that income was derived.

Article 33 For the purposes of Article 7 of the Tax Law, the term "the amount of tax payable under this Law" shall mean the amount of tax payable on income derived by a taxpayer from sources outside the People's Republic of China, calculated separately for each different country or region and for each different income category, in accordance with the standard for deductions of expenses and the applicable tax rates stipulated in the Tax Law. The sum of the amounts of tax payable in different income categories within the same country or region shall be the limit for deductions for that country or region.

If the actual amount of individual income tax paid by a taxpayer in a country or region outside the People's Republic of China is less than the limit for deductions for that country or region computed in accordance with the provisions of the preceding paragraph, the balance shall be paid in the People's Republic of China. If the amount exceeds the limit for deductions for that country or region, the excess portion may not be deducted from the amount of tax payable for that tax year, but such excess portion may be deducted from the unused portion of the limit for deductions for that country or region during subsequent tax years), for a maximum period of five years.

Article 34 When a taxpayer applies for deduction of the amount of individual income tax paid outside the People's Republic of China in accordance with Article 7 of the Tax Law, he shall provide the original tax payment receipt issued by the tax authorities outside the People's Republic of China.

Article 35 When a withholding agent makes taxable payments to individuals, he shall withhold tax in accordance with the 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" shall include payment in cash, by remittance, by account transfer, and in the form of negotiable securities or physical objects as well as payment in other forms.

Article 36 A taxpayer shall, in accordance with regulations, go through tax declarations with the competent tax authorities in any of the following circumstances:

(a) his annual income exceeds ￥120,000;

(b) earning income from wages or salaries from two or more places within the territory of China; (c) obtaining income from outside China;

(d) obtaining taxable income but without withholding agents;

(e) other circumstances as stipulated by the State Council.

The taxpayer whose annual income exceeds ￥120,000 shall go through the formalities of tax declarations with the competent tax authorities within 3 months following the end of the tax year.

The administrative measures governing the place where taxpayers go through tax declarations and other relevant matters shall be formulated by the competent tax authority under the State Council.

Article 37 For the purposes of Article 8of the Tax Law, the term “declarations of withholdings in full for all taxpayers” shall mean the withholding agents, within the following month withholding tax, submit to the competent tax authorities the basic information of the taxpayers whose income is paid, the amount of the income paid, the specific amounts and total amount of the tax withheld as well as other tax-related information.

The administrative measures for declarations of withholdings in full for all taxpayers shall be formulated by the competent tax authority under the State Council.

Article 38 When a taxpayer personally files his tax returns, the tax that has been withheld inside the People's Republic of China may be deducted from the amount of tax payable, in accordance with regulations.

Article 39 A taxpayer who concurrently derives income under two or more of the categories listed in Article 2 of the Tax Law shall compute and pay tax separately for each category. A taxpayer who derives income under Subparagraph (1) (2) or (3) of Article 2 of the Tax Law in two or more places inside the People's Republic of China shall combine the income under the same category for the computation and payment of tax.

Article 40 For the purposes of the second paragraph of Article 9 of the Tax Law, the term "specified industries" shall mean the excavation industry, ocean-shipping industry, deep-sea fishing industry and other industries as determined by the competent finance and tax authorities under the State Council.

Article 41 For the purposes of the second paragraph of Article 9 of the Tax Law, the term "tax computed on an annual basis and paid in advance in monthly installments" shall mean the monthly prepayment of the tax payable on the income from wages and salaries of staff and workers in the specified industries listed in Article 38 hereof, and the computation of the actual tax payment due, within 30 days from the last day of the year, by averaging over 12 months the total income from wages and salaries for the whole year, with excess payments refunded and deficiencies made good.

Article 42 For the purposes of the fourth paragraph of Article 9 of the Tax Law, the phrase "the tax shall be paid into the State Treasury within 30 days after the end of each tax year" shall mean that taxpayers who derive their income from contracted or leased operation of enterprises in a lump sum payment at the end of the year shall pay the tax payable thereon into the State Treasury within 30 days from the date on which the income is derived.

Article 43 In accordance with the provisions of Article 10 of the Tax Law, foreign currency income shall be converted into Renminbi for the computation of the amount of taxable income at the average exchange rate on the last day of the preceding month in which the tax payment receipt is issued. At the time of the annual settlement after the end of the year in accordance with the Tax Law, the amounts of foreign currency income on which tax has been prepaid on a monthly basis or each time the income was derived shall not be converted again. As for the portion of income the tax on which is to be made up, the amount of taxable income shall be computed by converting such portion of income into Renminbi according to the average exchange rate on the last day of the preceding tax year.

Article 44 When tax authorities pay commissions to withholding agents in accordance with Article 11 of the Tax Law, they shall issue to the withholding agents monthly refund certificate, on the strength of which the withholding agents shall carry out treasury refund procedures with designated banks.

Article 45 The models for individual income tax returns, individual income tax withholding statements and individual income tax payment receipts shall be formulated by the competent tax authority under the State Council in a unified manner.

Article 46 For the purposes of the Tax Law and these Regulations, the term "tax year" shall mean the period commencing on January 1st and ending on December 31st on the Gregorian calendar.

Article 47 Commencing with the 1994 tax year, individual income tax shall be computed and levied in accordance with the Tax Law and these Regulations.

Article 48 These Regulations shall be implemented as of the date of promulgation. The Provisional Regulations of the State Council of the People's Republic of China on the Reduction of Individual Income Tax on the Income From Wages and Salaries Derived by Foreign Personnel Working in China promulgated by the State Council on August 8th, 1987 shall be repealed at the same time.