China Individual Income Tax Guide (4) - Detailed Stipulations on Income of Foreign Individuals and Taxation on Relevant Items of Income

1. Determination of Income from Wage and Salary

In accordance with the stipulations of the document Cai Shui Zi No.189 issued by the Ministry of Finance [1980], foreign personnel who comes to China to work shall be granted by dispatching units from foreign countries with expenses to be responsible for a task until it is completed, expenses cover salary, outlay for public purpose (expenses for the purpose of posts and communications, office expense, advertising expenses and entertainment expenses necessary for business contact) and living allowance (housing accommodation expense and travel expense), for the aforesaid expenses which can be divided clearly, individual income tax could be levied only on the part of the income from wage and salary according to relevant stipulations.

In accordance with the stipulations of the document Cai Shui Zi No.021 issued by the Ministry of Finance and the State Administration of Taxation [1988], houses purchased or hired by foreign-funded enterprises and foreign establishments in China for the purpose of being provided to foreign personnel for residence free of charge may be not chargeable to the taxable income amount of foreign personnel. Housing accommodation expense being granted to foreign personnel on quota basis could be itemized as expenses and shall chargeable to the income from wage and salary of foreign personnel.

2. Other Stipulations on Income from Wage and Salary Obtained by Foreign Individuals

In accordance with the stipulations of the document Cai Shui Wai Zi No.148 issued by the Ministry of Finance and the State Administration of Taxation [1980].

(1) For the income obtained from several units within the borders of China by cultural and educational foreign experts coming to China to work, the income itemized under the category of wage and salary shall be aggregated and which on individual income tax is levied; for the income itemized under the category other than wage and salary shall be separately taxed.

(2) For economic foreign experts coming to China to work who are granted with housing, car and medical treatment free of charge by China during the service period within the borders of China, individual income tax shall be levied on the income from wage and salary pursuant to the Tax Law in accordance with Article 2 of Cai Shui Zi No.189 [1980].

(3) Income from wage and salary obtained by foreign journalists stationed in the news agency of China shall be levied pursuant to the Tax Law. If they ask for the exemption , the principle of reciprocity shall apply, namely, on the condition that the contracting state expressly state that Chinese journalists stationed in the news agency of foreign countries shall be exempt from individual income tax, China will exempt from taxation on foreign journalists stationed in the news agency of China through diplomatic channel.

(4) Provided that Third Secretary in Embassy of the People's Republic of China in America obtains the income from wage and salary in liaison office of America Datong Pacific Trade Company stationed in Beijing as a part-time job, the income shall be levied according to the Tax Law.

In accordance with the document Guo Shui Fa [1999] No.241, income from wage and salary obtained by foreign individuals because of tenure of an office or employment in foreign-funded enterprises inside The borders of China shall be paid by foreign-funded enterprises. For the income paid partly or wholly by affiliated enterprises abroad instead of by foreign-funded enterprises due to affiliation therebetween, foreign-funded enterprises within the borders of China shall report relevant taxation documents and withhold and remit individual income tax on the basis of facts according to the Tax Law. For the income from wage and salary obtained by employees from the head office or the affiliated enterprise, foreign enterprises with estavlishments and sites inside the borders of China shall withhold and remit individual income tax with reference to the aforesaid stipulations.

3. Stipulations on Taxation on Directors and Senior Management Personnel

(1) In accordance with the stipulations of the document Guo Shui Fa [1994] No.148 and Guo Shui Han Fa [1995] No.125 issued by the State Administration of Taxation, For individuals who take the post as directors or high-level managersof 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 post 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 according to Article 2, 3 and 4 of Guo Shui Fa[1994] No.148. Higher management level shall include managing director, deputy managing director, directors of all functions, director general and other posts at management level.

(2) In accordance with the stipulations of the document Guo Shui Fa [1996] No.214 issued by the State Administration of Taxation, provided that the director or president of the board in foreign-funded enterprises concurrently assumes the offices of direct management or engages in daily enterprise management in very deed without any assumption of direct management in the enterprise nominally, dual identity of director (chairman of board) and employees shall be determined. Except that the income from dividend and bonus shall be exempt from individual income tax according to relevant stipulations, the income from director's fees by virtue of the director (chairman of board) identity and wage and salary by virtue of the employee identity shall be respectively declared.

Provided that the aforesaid individuals obtain the income in the name of director's fees or in the form of dividend distribution, they shall declare the monthly income from wage and salary resulting from daily enterprise management on their own initiative, or competent tax authorities appraise and determine due monthly income with reference to the income level of similar posts in regions and industries of the same kind and enterprises of similar sizes and levy individual income tax according to relevant stipulations.

(3) In accordance with the stipulations of the document Guo Shui Fa [1994] No.089 issued by the State Administration of Taxation, director's fees obtained by individuals by virtue of assuming the office of director fall into the remuneration for labor service and shall be subjected to taxation according to the category of remuneration for labor service.

In accordance with the additional stipulations of the document Guo Shui Han [1994] No.284 issued by the State Administration of Taxation, provided that directors or partners in foreign-funded enterprises concurrently assume the office in enterprises with establishments and sites inside the borders of China, or engage in daily enterprise management in very deed without any assumption of direct management in the enterprise nominally, the income obtained from the abovementioned posts shall be deemed to be the income from inside the borders of China, the individual income tax shall be levied according to the Tax Law and Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China and other relevant regulations. For the income undeclared or declared according to false documents, due income from wage and salary shall be appraised and determined and, on which individual income tax is calculatedd and levied according to the stipulations of Guo Shui Fa [1996] No.214.

4. Stipulations on Taxation on Artistic and Sport Per-formances Given by Overseas Troupes or Individuals in China

In accordance with the stipulations of Guo Shui Fa [1994] No.106 issued by the State Administration of Taxation, for performing troupes which can provide complete and accurate certificates showing their outlay of expenses, according to　the related stipulations of the Tax Law, individual income tax shall be levied on the　remuneration actually paid by the performing troupes to individual performers or athletes in accordance with the related stipulations of the Tax Law.

(1) for performing troupes which cannot provide complete and accurate certificates showing the outlay of expenses and cannot correctly calculate the amount of taxable income, while calculating and levying enterprise income tax, in accordance with the principle stipulated in article 16 of the Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China, enterprise income tax and local income tax shall be levied at the tax rate stipulated in the enterprise income tax law on the balance of their total income amount after subtracting the remuneration paid to individual performers and athletes and other performing expenses equivalent to 30 percent of the total income value; with regard to the remuneration paid to individual performers and athletes as mentioned above, individual income tax shall be withheld by the performing troupe　when it pays the remuneration in accordance with the stipulations as set in the Tax Law, with regard to performing troupes which have not declared the amount of　payments of remuneration to individual performers and athletes or fail to fulfill the withholding obligations, the balance of their total income value after subtracting other performing expenses equivalent to 30 percent of the total value of income as　mentioned above should be regarded as the amount of payable income of that performing troupe, enterprise income tax and local income tax shall be calculated and levied in accordance with the enterprise income tax law. No more individual income tax shall be levied on individual performer or athletes.

(2) In regard to the remunerations paid by the performing troupe to individual performers and athletes, the performers and athletes who are invited temporarily and are not employees of the performing troupe, individual income tax shall be levied on the income from labor service remuneration after subtracting the prescribed expenses in accordance with the stipulations of the Tax Law; for performers and athletes who belong to employees of the performing troupe, individual income tax shall be levied on the wage and salary incomes after subtracting the prescribed expenses in accordance with the stipulations of the Tax Law.

5. Stipulations on Taxation on Assumed Rent

In accordance with the stipulations of the document Cai Shui Wai Zi [1989]No.052 issued by the State Administration of Taxation, the assumed rent refers to housing accommodation expenses paid by some foreign companies to be provided for the residence of expatriate employees stationed in other countries for free with the aim to relieving rent burdens from expatriate employees. However, foreign companies deduct the housing expenses calculated from the salary in line with general housing level in home country to be borne by expatriate employees so as to prevent any benefits resulting from no rent payments. In accordance with the Tax Law and relevant regulations, provided that foreign companies can provide relevant proofs on the housing expenses paid for expatriate employees stationed in China, the housing expenses may not be chargeable to the taxable income amount. Thereby, the assumed rent shall be itemized as expenses for housing by individuals and be subject to individual income tax and shall not be deducted.

6. Stipulations on Taxation on Relocation Allowance

In accordance with the stipulations of the document Guo Shui Han Fa[1990]No.1337 issued by the State Administration of Taxation, the relocation allowance in the nature of subsidy received from the company on a monthly basis shall be part of remuneration for labor service monthly rendered, and shall be chargeable to the income from wage and salary and be levied.

7. Stipulations on Taxation on Material Benefits Derived by Individuals

In accordance with the stipulations of the document Guo Shui Fa[1995]No.115 issued by the State Administration of Taxation, foreign-funded enterprises and foreign enterprises (hereinafter referred to as enterprises) purchase consumable commodities such as housing and car for employees who are up to the mustard, and the name of the employee is filled in the certificate of title and receipt for purchased car, and upon agreement between both parties, the ownership of housing and car wholly belong to the employees upon the prescribed length of service or who match other conditions. The material benefits received by individuals shall be chargeable to the taxable income on the very month on the basis of the price labeled on relevant vouchers or the price checked by competent tax authorities. In consideration of high value of the aforesaid material objects and the ownership being gradually possessed with the lengthening of service periods, the aforesaid material benefits can be chargeable to the taxable income on a monthly basis pursuant to the specified length of service for possession of the ownership of material objects (for length of service being over 5 years, 5 years shall prevail).

8. Stipulations on Taxation on Foreign Personnel Engaging in Marine Oil Operation

(1) In accordance with the stipulations of the document Cai Zheng You Zi [1984] No.3 issued by the Ministry of Finance, for expatriate employees dispatched by foreign petroleum companies or overseas affiliated companies for contracting commodity grain or companies from the third party on temporary basis for marine oil operations in China, provided that the income from wage and salary is paid by foreign countries or contractors operating in China to overseas companies universally in the name of service expenses or personal expenses-salary according to the number of dispatched persons and service period, and then overseas companies pay the income to expatriate employees, the income obtained by these employees shall still be part of the income arising inside the borders of China. Provided that foreign countries deduct the income of employees as working expenses inside the borders of China when paying individual income tax, it shall be regarded as expatriate employees from foreign companies or contractors performing petroleum operations in Chinese marine and the income of employees shall be subject to individual income tax.

(2) In accordance with the stipulations of the document Cai Zheng You Zi [1985] No.24 issued by the Ministry of Finance, for individuals who are employees authorized by joint venture contract, whether they are Chinese employees or foreign employees, they shall be treated as employees from joint venture and subject to individual income tax, and joint ventures shall withhold the tax from the income according to relevant regulations.

(3) In accordance with the stipulations of the document Cai Zheng You Zi [1985] No.33 issued by the Ministry of Finance, before the contract for cooperative prospecting and developing marine oil is signed between Chinese petroleum corporation and foreign petroleum corporation, personal expenses are expressly stateed to be itemized as prospecting expense. Thereby, if the income obtained by foreign employees coming to China for bidding and negotiations under contract is itemized under establishments in China, individual income tax shall be levied in accordance with the Tax Law.

(4) In accordance with the stipulations of the document Guo Shui You Han [1990] No.8 issued by the Ministry of Finance, in respect to personal expenses for foreign employees by Sino-foreign cooperative petroleum exploitation joint venturer through associated account book, in addition to tax-exempt items explicitly specified by the Tax Law and relevant regulations, the rest of the expenses shall be deemed income from wage and salary on which individual income tax is calculated and levied.

9. Stipulations on Taxation on Insurance Premium Outside The borders of China

In accordance with the stipulations of the document Guo Shui Fa [1998] No.101 issued by the State Administration of Taxation, individual income taxation on insurance premium outside China enjoyed by employees from foreign-funded enterprises and foreign enterprises is stipulated as follows:

(1) For various insurance premiums outside China paid or borne by enterprises for employees working inside the borders of China, those insurance premiums which have been deducted from corporate taxable income in the name of income paid to employees shall be chargeable to the income from wage and salary of employees and declared for individual income tax according to relevant regulations.

(2) For insurance premiums outside the borders of China paid or borne by enterprises for employees working inside the borders of China, those which have not been deducted from corporate taxable income shall in principle be chargeable to the income from wage and salary of employees and declared for individual income tax according to relevant regulations. But for expenses paid actually for the purpose social insurance borne by employers according to relevant Chinese laws, those expenses may not be chargeable to taxable income amount upon approval of local tax authorities.

(3) Various insurance premiums outside China paid by expatriate employees inside the borders of China shall not be deducted from taxable income of expatriate employees.

10. Stipulations on Taxation on Income from Personal Transferring of House Property

In accordance with the stipulations of the document Guo Shui Han Fa [1990] No.1199 issued by the State Administration of Taxation, provided that it is difficult for overseas Chinese to provide relevant certificates of housing payment as the house is purchased a long time ago (in some cases, house purchased before liberation) when overseas Chineses transfer their own house property, or it is difficult to appraise price for house property due to monetary value in those days different from current monetary value though relevant certificates can be provided. Such transferred houses may be revalued by local real estate management authorities and verified and approved by local tax authorities, and individual income tax shall be calculated and levied on the balance between income from property transfer and the revalued house price.