CHINA Law and Practice Contributed by: Chengchen Gan (Mark), Commerce & Finance Law Offices
1. Tax 1.1 Tax Regimes Determining Taxable Residents in the PRC and Taxation on Worldwide Income First of all, for any individual that is determined as a PRC “taxable resident”, they are liable to pay individ - ual income tax on their worldwide income, of which, any income derived overseas shall be declared and taxed between March 1 and June 30 of the subse - quent year. On the other hand, in the case where an individual is not recognised as a “taxable resident” – ie, a “non-resident individual”, they are only required to pay individual income tax on income derived within China. According to China’s current tax law, as long as the individual either “has a domicile in China” or “has resided in China for a total of 183 days in a tax year”, they can be identified as a “taxable resident”. Please note that non-Chinese nationals can also be taxable residents. A “domicile in China” does not necessarily mean possession of a real estate in China but refers to a habitual residence in China. For individuals residing in China for reasons such as studying, working, visit - ing relatives, or tourism, but who intend to return to their home country once those reasons cease to exist, their habitual residence is not considered to be within China. Recent Reforms on the Method of Collection and The biggest change in the Individual Income Tax Law is the adoption of the concept of “comprehensive income”, which combines salaries and wages, remu - neration for personal services, author’s remuneration, and royalties, so as to apply an extra progressive tax rate of 3% to 45%. Excess progressive tax rate of comprehensive income: • for the portion below CNY36,000, 3%; • for the portion exceeding CNY36,000, 10%; • for the portion exceeding CNY144,000, 20%; • for the portion exceeding CNY300,000, 25%; the Structure of Tax Rates Comprehensive income
• for the portion exceeding CNY420,000, 30%; • for the portion exceeding CNY660,000, 35%; and • for the portion over CNY960,000, 45%. Income from business operations This includes the following. • Income derived from production and business activities of individual industrial and commercial households, including income earned by individu - als as sole proprietors or individual partners of partnerships registered within the country. • Income obtained by individuals who, in accord - ance with the law, engage in educational, medical, consulting, and other paid service activities. • Income obtained by individuals through contract - ing, leasing, subcontracting, or subleasing opera - tions with enterprises or institutions. • Income obtained by individuals from other produc - tion and business activities. Excess progressive tax rate of income from business operations: • for the portion below CNY30,000, 5%; • for the portion exceeding CNY30,000, 10%; • for the portion exceeding CNY90,000, 20%; • for the portion exceeding CNY300,000, 30%; and • for the portion over CNY500,000, 35%. Other income This includes income from interest, dividends, bonus - es, lease of property, transfer of property and inciden - tal income. For high net worth individuals, these are the main sources of income. Among them, incidental income, for example, includes lottery wins. Please note that although the recipient of a house as a gift is subject to incidental income tax at a rate of 20%, no individual income tax will be levied on both parties when the following three situations apply: • the recipient is the spouse, parent, child, grandpar - ent, grandchild, sibling of the transferer; • the recipient is the caregiver or supporter of the transferer; or
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