CIRCULAR ON SOME POLICY QUESTIONS CONCERNING INDIVIDUAL INCOME TAX

CIRCULAR ON SOME POLICY QUESTIONS CONCERNING INDIVIDUAL INCOME TAX (Ministry of Finance and State Administration of Taxation May 131994 [94] Coded Cai Shui Zi No. 020) Whole Doc.

To the financial departments (bureaus) and tax bureaus of various provinces, autonomous regions and municipalities directly under the central government, to the financial bureaus and tax bureaus of various cities with independent planning and to various sub-bureaus of Offshore Oil Tax Administrative Bureau: In accordance with the spirit of the related stipulations of the Individual Income Tax Law of the People's Republic of China and the regulations for its implementation, the Circular On Some Policy Questions Concerning Individual Income Tax is hereby given as follows: I. Questions concerning the levying of tax on individual industrial and commercial units (1) The expense deducting standard for the proprietors of individual industrial and commercial units and the wage deducting standard for the employees shall be determined by the tax bureaus of various provinces, autonomous regions and municipalities. For the expenditure of interest on the loans borrowed by the individual industrial and commercial units during the period of production and operation, that part with legal certificate and not higher than the amount calculated in accordance with the interest rate for loans of the same category and in the same period which are extended by financial institutions shall be allowed to be deducted.

(2) For the plantation, agriculture, animal husbandry and fishing industry operated exclusively by individual industrial and commercial units or individuals, when the items they operate come within the dutiable scope of agricultural tax (including special agricultural product tax, the same below) and animal husbandry tax and on which agricultural tax and animal husbandry tax have already been levied, no more individual income tax shall be levied; when their operational items do not come under the dutiable scope of agricultural tax and animal husbandry tax, individual income tax shall be levied on their earnings. For those who concurrently operate the above-mentioned four industries and the income from which are calculated separately, the matter shall be handled in light of the above-mentioned principle. For those from whom individual income shall be levied, individual income tax shall be calculated and levied on the combined income earned from the production and operation of other trades; when the income from the four industries cannot keep separate accounts, individual income tax shall be levied on the whole lot of income.

(3) For the profits earned from the joint management of individual industrial and commercial units and enterprises, individual income tax shall be levied on the items of incomes such as interest, dividends and bonuses.

(4) When individual industrial and commercial units and individuals engaging in production and operation have various items of taxable incomes earned from unrelated production and management activities, individual income tax shall be calculated and levied separately according to regulations.

II. The incomes listed below are exempt from individual income tax for the time being: (1) Housing subsidies, food allowances, moving fees and laundry fees gained by individual foreigners in the non-cash form or in the form of being reimbursed for what they spend.

(2) Travelling allowances at home and abroad gained by individual foreigners in accordance with rational standards.

(3) The visiting relatives expense, language training expense and children education expense gained by individual foreigners, that part considered to be reasonable through examination and approval by local tax authorities.

(4) Money awards gained by individual's crime-reporting, assisting in investigating various law-breaking and criminal acts.

(5) The withholding service charge gained according to regulations by individual who performs the withholding procedures.

(6) The income gained by individual from the transfer of house which has been used by oneself for over five years and which is one's only residential house.

(7) In accordance with the spirit of the Provisional Regulations of the State Council On Some Questions Concerning the Retirement of Senior Experts, a document Coded Guo Fa (1993) No. 141 and the Circular of the General Office of the State Council On the Question Concerning the Examination and Approval of the Temporary Postponement of Retirement of Outstanding Senior Experts, senior experts (referring to experts and scholars enjoying special government allowances issued by the state) who have reached the age of retirement are allowed to appropriately extend their age of retirement due really to the need of work, their wage and salary incomes received during the period of retirement are regarded as retirement wages and are exempt from individual income tax.

(8) The incomes gained by individual foreigners from dividends and bonuses of enterprise with foreign investment.

(9) The wage and salary incomes gained by foreign experts who conform with one of the following conditions may be exempt from individual income tax: 1. Foreign experts directly sent by the World Bank to work in China in accordance with a special loan agreement; 2. Experts directly sent by the United Nations' Organizations to work in China; 3. Experts coming to work in China for the UN aid projects; 4. Experts sent by an aid-granting country to China to work specially for the project granted gratis by the country; 5. Cultural and educational experts coming to China to work for two years on the cultural exchange project under an agreement signed between two governments, with their wages and salaries being borne by the country; 6. Cultural and educational exerts coming to China to work for two years on the international exchange projects of China's universities and colleges, with their wages and salaries being borne by the country concerned; 7. Experts coming to work in China through a non-government scientific research agreement, with their wages and salaries being borne by the government organization of the country concerned.

III. Questions concerning the deduction of intermediate expenses The intermediate expenses, paid by an individual in the process of engaging in technological transfer and providing labor services, may be deducted from his income if he can provide effective and legal certificates IV. With regard to whether or not individual income tax should be levied on the interest, dividends and bonuses gained by an individual from grass-roots supply and marketing cooperatives and rural credit cooperatives, the matter shall be reported by the tax bureaus in various provinces, autonomous regions and municipalities to the governments for determination and then reported to the Ministry of Finance and the State Administration of Taxation for the record.