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CIRCULAR ON QUESTIONS CONCERNING TAX PAYMENTS FOR WAGE AND SALARYINCOME GAINED BY INDIVIDUALS WITHOUT RESIDENCE WITHIN THE TERRITORY OFCHINA

CIRCULAR ON QUESTIONS CONCERNING TAX PAYMENTS FOR WAGE AND SALARYINCOME GAINED BY INDIVIDUALS WITHOUT RESIDENCE WITHIN THE TERRITORY OFCHINA (State Administration of Taxation: 30 June 1994 Coded Guo Shui Fa[1994] No. 148) Whole Doc.

To the tax bureaus of various provinces, autonomous regions and municipalities, the tax bureaus of various cities with independent planning, and various sub-bureaus of the Offshore Oil Tax Administration: In accordance with the Individual Income Tax Law of the People's Republic of China (hereinafter referred to as Tax Law) and its Detailed Rules for Implementation (hereinafter referred to as Detailed Rules for Implementation) as well as related stipulations of the agreement on the avoidance of double taxation China signs with other countries (hereinafter referred to as tax agreement), we hereby clarify the following question concerning how to determine tax on the wage and salary incomes gained by individuals without residence in the territory of China who hold a post in companies, enterprises and economic organizations (hereinafter referred to as enterprises within China) or agencies and sites as well as permanent organizations (hereinafter referred to as organizations within China) as stated in the tax agreement set up in China by foreign enterprises, or who engage in work within China for being employed or implementing the contract: I. Concerning determination of the sources of wage and salary income In line with the stipulation of Section (1) of Article 5 of the Detailed Rules for Implementation, the wage and salary income originates from the territory of China shall be considered the wage and salary gained by individuals during the period of actual work within China, that is: the wage and salary gained by individuals during the period of actual work within China which are paid by enterprises or individual employers whether inside or outside China, all belong to incomes originate from within the territory of China: the wage and salary gained by an individual during the period of actual work outside China, which are paid by enterprises or individual employers whether inside or outside China, all belong to incomes originate from outside China.

II. Concerning the determination of individual tax payers with no residence within the territory of China but who, within a tax- paying year, live continuously or for an accumulated period of no more than 90 days within the territory of China, or who live continuously or for an accumulated period of no more than 183 days within the territory of China during the period as set in the tax agreement In accordance with the related stipulations of Clause 2 of Article 1 of the Tax Law, Article 7 of the Detailed Rule for Implementation as well as the Tax Agreement, the wage and salary for the individuals with no residence in the territory of China but who, within a tax-paying year, work continuously or for an accumulated period of no more than 90 days or live continuously or for an accumulated period of no more than 183 days within the territory of China, which are paid by the employers outside China and which are not borne by the organization within China of the said employers, are exempt from declaration for payment of individual income tax. The above-mentioned individuals shall declare tax payment for the wage and salary incomes gained during the period of their actual work within China, which are paid by the enterprises or individual employers or borne by the organizations within the territory of China. If these enterprises or organizations within China for which enterprise income tax is calculated and levied by the method of appraising and deciding profits or enterprise income tax is not calculated and levied for having no business income, wages and salaries gained by individuals during the period or their actual work in China who assume office in and are employed by the enterprises or organizations within China, which, whether are or are not recorded in the account books of the enterprises or organizations within China, shall all be regarded as wages and salaries paid by enterprises within China or borne by the organizations within China.

The above-mentioned individuals shall declare tax payment within the time limit as set in the Tax Law for their monthly payable tax.

III. Concerning determination of tax payment by individuals without residence within the territory of China but who, in the tax-paying year, live continuously or for an accumulated period not more than 90 days or live continuously or for an accumulated period exceeding 183 days but less than one year within the territory of China during the period specified in the tax agreement.

In accordance with the related stipulations of Clause 2 of Article 1 as well as the tax agreement, the individuals without residence within the territory of China but who, within the tax- paying year, work continuously or for an accumulated period exceeding 90 days within China or who, during the period as set in the tax agreement, live continuously or for an accumulated period exceeding 183 days but less than one year within the territory of China, shall all declare payment of individual income tax on the wage and salary income gained during the period of the actual work in China paid by the enterprises or individual employers within China and by enterprises or individual employers outside China; the wage and salary income they gained during the period of their work outside China, with the exception of what is stipulated in Article 5 of the Circular, are exempt from individual income tax.

The above-mentioned individuals shall declare payment of the monthly payable tax in accordance with the time limit as stipulated in the Tax Law. Individuals, who have wage and salary income paid by employers outside China and not borne by the organizations within China, may predetermine that within the taxpaying year they live continuously or for an accumulated period exceeding 90 days or live continuously or for an accumulated period exceeding 183 days within the period as specified in the tax agreement, they shall declare payment for the monthly payable tax within the time limit specified in the Tax Law; individuals, who cannot predetermine that within the tax-paying year or during the related period as set in the tax agreement, live continuously or for an accumulated period exceeding 90 days or 183 days, may, within seven days of the following month after reaching 90 days or 183 days, declare tax payment together with the payable tax of the previous month.

IV. Concerning determination of tax payment by individuals without residence within the territory of China but who have lived in China for a full year.

In accordance with the stipulation of Clause 1 of Article 1 of the Tax Law and Article 6 of the Regulations for Implementation, individuals without residence within the territory of China but who have lived in China for a full year but not exceeding five years shall all declare payment of individual income tax on the wages and salaries gained by them during the period of their work in China and paid by the enterprises or individual employers within China and by enterprises or individual employers outside China. An individual who has wage and salary income gained during the period of work when he temporarily leaves China as stated in Article 3 of the Regulations for Implementation shall declare payment of tax only on the part paid by enterprises or individual employers within China. If enterprises and organizations within the territory of China which calculate and levy enterprise income tax by adopting the method of verifying profit or those which do not have business income and therefore enterprise income tax is not levied, the wage and salary gained by individuals who assume office in or are employed by the enterprises or organizations within China, no matter whether or not recorded in the account books of the enterprises or organizations within China, shall all be regarded as paid by the enterprises or organizations within China where they assume office.

The above-mentioned individuals who, within one month, has both wage and salary income gained during the period of work within China and wage and salary income gained during the period when they temporarily leave China and paid by the enterprises or individual employers within China, shall have the month's payable tax calculated for both incomes and declare tax payment within the time limit as set in the Tax Law.

V. Concerning determination of tax payment directors and high- level managerial personnel within China.

For individuals who take the post as directors or high-level managers of the enterprises within China, the director fees or wage and salary gained by them and paid by the enterprises within China, the stipulations of Articles 2 and 3 of this Circular are not applicable to them, shall declare payment of individual income tax no matter whether or not they perform their duties outside China during the period from the day they hold the past as directors or high-level managers of the enterprises within China to the day when they terminate the above-mentioned post; they shall perform the tax paying obligation as set in the stipulations of Articles 2, 3 and 4 of this Circular on the wage and salary gained by them and paid by the enterprises outside China.

VI. The calculation of payable tax on the wage and salary income gained in less than one month Individuals fit in with the situation as mentioned in Articles 2, 3, 4 and 5 of this Circular who declare payment for the wage and salary incomes gained during the period of less than one month shall have the actual payable tax amount calculated for the wage and salary income in line with a full month, the formula for calculation is as follows: Payable tax amount = The amount of payable tax on current wage & salary income X Applicable tax rate - Rapid calculating deducting number X (Actual days in China in the month ö Days in the month) If what an individual of the above-mentioned case receives is daily wage and salary, the daily wage and salary should be multiplied by the number of days in the current month and, after being converted into monthly wage and salary, the above-mentioned formula should be followed in calculating the payable tax amount.

VII. The stipulations of this Circular takes effect from July 1, 1994. If the content of previous regulations is different from the content of the stipulations of this Circular, the matter shall be carried out in accordance with the stipulations of this Circular.

Appendix: Explanations on Examples
Example 1 Exampple 1: A person who is an employee of a foreign company was sent to China in 1994. He contracted to provide labor service for an engineering project in China for the foreign company, the number of days totalled 85. The wage and salary remuneration he gained during the period of work in China belongs to income derived from within the territory of China, but since the total days of his work in China within a tax-paying year was less than 90 days, whether or not he can enjoy the preferential treatment of exemption from individual income tax shall be judged in accordance with the stipulations of Article 7 of the Regulations on Implementation of China's Individual Income Tax Law and Clause 1 of Article 2 of the Circular on Questions Concerning Tax Payment for the Wage and Salary Income Gained by Individuals Without Residence Within the Territory of China (hereinafter referred to as Circular). Verification reveals that enterprise income tax is levied by the method of appraising and deciding profits, although personnel wage expenses are not listed in the account book in China, however, since the individual is the employee of the foreign company who contracted to undertake the project and was sent to work for that engineering project, his wage should be borne by that engineering project. According to related stipulations of Article 2 of the Circular, the wage and salary of that person should be regarded as being borne by the contracted engineering project even though it is not indicated in the project account book, the individual shall declare payment of individual income tax (if there is agreement that the state handles the matter, the principle is the same as above) on a monthly basis within the time limit as stipulated in the Tax Law.

Example 2 Example 2: A foreigner who assumed a post at the representative office of a foreign company within the territory of China worked continuously for 60 days in China in 1994. The wage and salary remuneration he gained during the period of work in China belonged to income originated in the territory of China, but his working time in China in a tax-paying year calculated continuously did not exceed 90 days, whether or not he can enjoy the preferential treatment of exemption of individual income tax shall be determined in accordance with Article 7 of the Regulation on the Implementation of China's Individual Income Tax Law as well as the stipulations of Clause 1 of Article 2 of this Circular.

Verification reveals that the representative office which engaged in the work of understanding the market situation, providing materials on market conditions as well as business liaison, consultancy and service activities for its general organization and did not have business income and was exempt from enterprise income tax, therefore no detailed book account was established to clearly indicate the representative's wage and salary. But because the person is an employee of the foreign company's office in China, his wage and salary should be borne by the office, in line with the stipulation of Article 2 of the Circular, although the wage and salary of the person is not listed in the office's account book, it should be regarded as a fact that the office has borne the person's wage and salary, the person shall declare payment of individual income tax within the time lime as set in the Tax Law on a monthly basis for the wage and salary income he gained during the 60-day period of work in China, the person is not required to declare payment of individual income tax (if there is an agreement that the state handles the matter, the principle is the same as above) for his wage and salary income gained during the period of work outside China.

Example 3 Example 3: A foreigner of a country which has not signed a tax agreement with China, who serves as an assistant manager of the market promotion department of a enterprise with foreign investment within China, the enterprise pays him a monthly wage of 10000 yuan, and the enterprise's parent company outside China pays him US $ 4000 a month, the person actually worked 250 days while performing his duty within China in 1994, and actually worked 115 days outside China. Because the person lived within the territory of China less than one year, but had exceeded 90 days, therefore in accordance with the stipulation of Clause 2 of Article 1 of the Individual Income Tax Law and Article 3 of the Circular, the person shall pay individual income tax for the wage and salary paid to him by the enterprise inside China and the enterprise outside China for the 250-day period of actual work within the territory of China, no individual income tax is levied on the wage gained during the period of work outside China and paid by the enterprise inside China and the enterprise outside China.

Example 4 Example 4: A Hongkonger serves as the chief representative of a Hong Kong company's representative office in Beijing, in 1994 he lived in the area under China's taxation jurisdiction for less than one year and actually worked for 200 days. In line with the stipulation of Clause 2 of Article 1 of the Individual Income Tax Law and Article 3 of the Circular, he shall pay individual income tax for the income he gained from within China. Therefore, no matter whether or not his wage and salary are paid within China, he shall pay individual income tax for the part of wage he gained during the period of actual work of 200 days.

Example 5 Example 5: A foreigner who serves as a financial manager for a enterprise with foreign investment within China receives a monthly wage of 10000 yuan paid by that enterprise and US $4000 paid by a company of the foreign party, in the year 1994 the person actually worked for 340 days within the territory of China, and went abroad on official business to perform his duty for 25 days. The person has lived for a full year within the territory of China, according to the stipulations of Clause 1 of Article 1 of the Individual Income Tax Law, Article 6 of the Regulations on Implementation of the Tax Law and Article 4 of the Circular, the person shall pay individual income tax for the wage he gained during the 340-day period of work within China and paid by the enterprise inside China and the enterprise outside China; the wage and salary gained during the 25 days of work outside China belong to income coming from outside China, and individual income tax is paid only for the part of wage paid by the enterprise inside China.

Example 6 Example 6: A foreigner who began on January 1, 1994 to serve as a deputy general manager of a enterprise with foreign investment within the territory of China, the enterprise paid him a monthly wage of 20000 yuan, at the same time, the overseas head office of the foreign party to the enterprise also pays him US $ 4000 in wage on a monthly basis, for most of his time he performs his duty abroad. In 1994 he came to work in China for a period calculated to be 180 days. In accordance with the Individual Income Tax Law as well as the stipulations of Article 5 of the Circular, his tax- paying obligation in China in 1994 is determined as follows: 1. Because he is a high-level managerial person of the enterprise, therefore, according to the stipulation of Article 5 of the Circular, during his term of office in China from January 1 to December 31 of 1994, he shall declare payment of individual income tax on a monthly basis within the time limit as stipulated in the Tax Law for the monthly wage and salary income of 20000 yuan paid by the enterprise.

2. Because the time of his work in China in 1994 did not exceed 183 days, according to the stipulations of the tax agreement, the wage and salary income paid by his employer abroad can be exempt from declaration on tax payment in China (if the person belongs to a resident of the country which has not signed a tax agreement with China, or he is a resident of Hong Kong, Macao or Taiwan, then the wage and salary paid by his employer abroad by the standard of a monthly US $ 4000, individual income tax shall be calculated and paid for that part gained during the period of 180 days of work within China together with the wage of 20000 yuan paid on a monthly basis by the enterprise within China).


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