Circular of State Administration of Taxation on Printing and Distributing the Self-Declaration Rules Concerning Individual Income Tax (Provisional)

To the state and local tax authorities of each province, autonomous region and municipality and city with separate planning:

In order to strengthen the administration of individual income tax, improve self-declaration rules on individual income tax, and protect taxpayers?legitimate interests, the Self-Declaration Rules Concerning Individual Income Tax (Provisional) formulated by the State Administration of Taxation are hereby printed and distributed to you for implementation in earnest, pursuant to the Law of the People’s Republic of China on Individual Income Tax and its implementing rules, the Law of the People’s Republic of China on the Administration of Tax Collection and its detailed rules, and other applicable tax laws.

Attachment: Sample of individual income tax declaration form

November 6, 2006

Self-Declaration Rules Concerning Individual Income Tax (Provisional)

Chapter 1 General Provisions

Article 1 In order to further strengthen administration of individual income tax, secure China’s tax revenue, protect taxpayers?legitimate interests, facilitate and regulate taxpayers?self-declaration behaviors, these Rules are hereby formulated pursuant to the Law of the People’s Republic of China on Individual Income Tax (“Law on Individual Income Tax? and its implementing rules, the Law of the People’s Republic of China on the Administration of Tax Collection (“Law on Tax Collection? and its detailed rules, and other applicable laws and regulations.

Article 2 In any of the following cases, the taxpayer obligated for tax payment under the Law on Individual Income Tax shall go through tax declaration in accordance with these Rules:
(1) With annual income of over RMB120,000;
(2) Receiving salary and remuneration from two or more employers in China;
(3) Generating income abroad;
(4) Generating taxable income without withholding agent;
(5) Other cases as specified by the State Council.

Article 3 For the taxpayer with annual income of over RMB120,000 as specified in Item (1) of Article 2 hereof, no matter whether he/she has paid individual income tax for each income in full, he/she shall submit a tax declaration to the tax authority at the close of each tax year.

Upon receipt of income, the taxpayers specified in Items (2), (3) and (4) of Article 2 hereof shall go through tax declaration with the tax authority in accordance with provisions hereof.

For the taxpayers specified in Item (5) of Article 2 hereof, tax declaration rules will be formulated otherwise according to the specific conditions.

Article 4 The taxpayer with annual income of over RMB120,000 specified in Item (1) of Article 2 hereof excludes the individuals who have no domicile in China and reside in China for less than one year within a tax year.

The taxpayer with income from China as specified in Item (3) of Article 2 hereof refers to the individuals who have domicile in China or those who have no domicile but reside in China for no less than one year within a tax year.

Chapter 2 Declaration Content

Article 5 After the close of a tax year, the taxpayer with annual income of over RMB120,000 shall fill out the Individual Income Tax Declaration Form (Applicable to the taxpayer with annual income of over RMB120,000) (See Schedule 1), and submit to the tax authority the form, together with the copies of his/her valid identity certificates and other materials required by the tax authority, when handling tax declaration.

Valid identity certificates include ID card, passport, reentry permit, and soldier status certificates.

Article 6 Annual income of over RMB120,000 mentioned herein means that the taxpayer generates income of over RMB120,000 from the following items within a tax year:
(1) Salary and compensation;
(2) Income from production and operation by individually-owned businesses;
(3) Income from contract operation and operation under lease of public institutions;
(4) Compensation for labor services;
(5) Author’s remuneration;
(6) Royalty;
(7) Interest, dividends, and bonus;
(8) Income from lease of property;
(9) Income from transfer of property;
(10) Incidental income;
(11) Other taxable income specified by finance department under the State Council.

Article 7 Income specified in Article 6 hereof shall not include:
(1) Tax-free income specified in Items 1-9 of Article 4 of the Law on Individual Income Tax, i.e.:
1. Rewards in respect of science, education, technology, culture, hygiene, sports and environmental protection, granted by provincial-level people’s governments, departments and commissions under the State Council, and units at the level of army corps and above of the Chinese People’s Liberation Army, and foreign and international organizations;
2. Interest of treasury bonds and financial bonds issued by China;
3. Subsidy and allowance provided by China pursuant to the unified provisions, i.e. the special government allowance, academician allowance, senior academician allowance granted in compliance with the requirements of the State Council and the provisions of Article 13 of implementing rules of the Law on Individual Income Tax, and other subsidies and allowances exempted from individual income tax as required by the State Council;
4. Welfare, pension for the disabled and for the survivors, and relief fund;
5. Insurance indemnities;
6. Military severance pay and demobilization pay;
7. Settling-in allowance, severance pay, retirement pay and allowance for retirees;
8. Income of diplomatic representatives, consular officers and other officers of the embassy and consulate of each country in China that shall be exempted from tax in accordance with China’s laws;
9. The income that shall be free of tax as provided in the international conventions and agreements signed by China.
(2) Income that is generated from China and is allowed to be free of tax as provided in Article 6 of the Implementing Rules of the Law on Individual Income Tax.
(3) The basic old-age insurance, medical insurance, unemployment insurance and public housing reserve fund contributed by units for individuals or by individuals in accordance with the provisions of Article 25 of the Implementing Rules of the Law on Individual Income Tax.

Article 8 The annual income generated from each item as mentioned in Article 6 hereof is calculated in a way as below:
(1) Salary and compensation is based on the income of unreduced expenses (RMB1,600 per month) and additional reduced expenses (RMB3,200 per month).
(2) The production and operating income of individually-owned businesses is calculated according to the taxable income. In case of account-checking and tax-collection, the annual income equals to the balance of total income in a tax year less costs, expenses and losses; in case of regular collection at fixed amount, the annual income is calculated according to the taxable income declared by the taxpayer or according to the aforesaid taxable income multiplied by the taxable income rate.
(3) The income from contract operation and operation under lease of a public institution shall be the total income in a tax year, i.e. the operating profit generated from contract operation or operation under lease plus the salary and remuneration from the institution.
(4) Compensation for labor service, author’s remuneration and royalty are calculated according to the income not deducting expense (RMB800 or 20% of income every time).
(5) Income from lease of property is calculated according to the income not deducting expense (RMB800 or 20% of income every time) and renovation costs.
(6) Income from transfer of property is calculated by taxable income, i.e. the income from transfer of property less the original value of property and the tax and reasonable expenses paid in the transfer.
(7) Income from interest, dividend and bonus, incidental income and other income shall be calculated by the full amount of income.

Article 9 For the income specified in Items (2)-(4) of Article 2 hereof, the taxpayer shall fill out and submit corresponding tax declaration form (see schedules 2-9) to the tax authority, coupled with other relevant materials as required by the tax authority.

Chapter 3 Declaration Place

Article 10 The taxpayer with annual income of over RMB120,000 may declare tax in the following places:
(1) If the taxpayer serves for a Chinese employer, he/she may declare tax to the tax authority in the place where the employer operates.
(2) If the taxpayer serves for two or more Chinese employers, he/she may declare tax to the tax authority in the places where either of the employers operates.
(3) If the taxpayer is not employed in China, and a part of his/her annual income derives from production and operating income of individually-owned businesses or income of contract operation or operation under lease from public institutions (hereinafter called “production and operating income?, he/she may declare tax to the tax authority in any of the actual business places.
(4) If the taxpayer is not employed in China, and has no production and operating income, he/she may declare tax to the tax authority in the place of domicile. If the taxpayer has domicile within the territory of China inconsistent with his/her place of residence, he/she may declare tax to the tax authority in either of the places. If the taxpayer has no domicile in the territory of China, he may declare tax to the tax authority in the place of residence.

Article 11 The taxpayer with income specified in Items (2)-(4) of Article 2 hereof may declare tax in the following places:
(1) If the taxpayer receives salary or compensation from two or more employers, he/she may declare tax to the tax authority in the place where any of the employers operates.
(2) The income generated abroad shall be declared to the tax authority in the place of domicile in China. If the taxpayer has domicile in China inconsistent with his/her place of residence in the country, the taxpayer may declare tax to the tax authority in either place. If the taxpayer has no domicile in China, he/she may declare tax to the tax authority in the place of residence in China.
(3) Individually-owned business declares tax to the tax authority in the actual business place.
(4) For sole proprietorship and partnership investors setting up two or more enterprises, the tax declaration place may be determined depending on different conditions:
1. If the enterprises are all sole proprietorship, the investor may declare tax to the tax authority in the actual business place of each enterprise.
2. If any enterprise is set up on a partnership basis, the investor may declare tax to the tax authority in the place of residence.
3. If any enterprise is set up on a partnership basis, and the place of residence of the individual investor is inconsistent with the business place of the enterprise, the investor may declare tax to the tax authority in the business place of any of the partnership enterprises.
(5) For the cases unmentioned above, the taxpayer shall declare tax to the tax authority in the place where the income is generated.

Article 12 The taxpayer shall not alter the tax declaration place at discretion. Where it is necessary to alter the tax declaration place under special cases, he/she shall report to the relevant tax authority for filing.

Article 13 The tax declaration places provided in Item 3 of Section (4) of Article 11 hereof shall not be altered within five years except under special cases.

Article 14 The place of residence mentioned herein refers to the place where the taxpayer resides in the past more than one year in succession after he/she leaves his/her domicile.

Chapter 4 Declaration Period

Article 15 The taxpayer with annual income of over RMB120,000 shall declare tax to the tax authority within three months after close of a tax year.

Article 16 For the income generated by individually-owned businesses, sole proprietorship and partnership enterprises, the taxpayer shall declare tax within seven days after the close of every month, if the tax is prepaid on a monthly basis; if the tax is prepaid on a quarterly basis, the taxpayer shall declare tax within seven days after the close of every quarter. After the close of a tax year, the taxpayer shall summarize, calculate and pay tax within three months.

Article 17 For the income from contract operation and operation under lease generated by the taxpayer at one time from public institutions, he/she shall declare tax within 30 days upon receipt of the income; if the income from contract operation and operation under lease is obtained several times within a tax year, the taxpayer shall declare the prepaid tax within the first seven days in the next month upon receipt of income, and summarize and pay the tax within three months after the close of a tax year.

Article 18 For the income generated abroad, the taxpayer shall declare tax to the tax authority in the territory of China within 30 days after the close of a tax year.

Article 19 Apart from the cases provided in Articles 15-18 hereof, the taxpayer shall declare tax for other income that shall be declared to the tax authority within seven days in the next month upon receipt of the income.

Article 20 If the taxpayer fails to complete tax declaration within the specified period and needs a deferment, he/she may handle the matter as provided in Article 27 of the Law on Tax Collection and Article 37 of the Implementing Rules of the Law on Tax Collection.

Chapter 5 Way of Declaration

Article 21 The taxpayer may declare tax personally, or by data telegraph or mailing, or by other ways as provided by the tax authority.

Article 22 If the taxpayer adopts data telegraph in tax declaration, he/she shall maintain relevant printed materials within the period as required by the tax authority.

Article 23 If the taxpayer adopts mailing in tax declaration, the receipt of registered mail of post office shall serve as basis for declaration, and the date of postmark shall be regarded as the actual declaration date.

Article 24 The taxpayer may entrust intermediary agencies or other persons qualified for tax agency service with tax declaration.

Chapter 6 Declaration Management

Article 25 The tax authority shall have various declaration forms published on its website, or placed in the tax handling hall providing tax declaration services, for taxpayers to download or access from time to time free of charge.

Article 26 The tax authority shall remind the taxpayer with annual income of over RMB120,000 to declare tax on his/her own by appropriate ways in the legal declaration period every year.

Article 27 The tax authority accepting tax declaration shall handle the procedures of collection, supplementation, refund and set-off of tax according to the declaration of taxpayers.

Article 28 The tax authority shall issue duty paid proof according to regulations for taxpayers who have completed tax declaration and submitted tax.

Article 29 The tax authority shall hold the tax declaration information of taxpayers in confidence.

Article 30 If the taxpayer alters tax declaration place and has reported the alteration to the original tax authority for filing, the original tax authority shall convey the information of alteration to the new tax authority.

Article 31 The tax authority shall establish and exercise dynamic management of tax payment files for taxpayers who have completed a tax declaration.

Chapter 7 Legal Responsibility

Article 32 If the taxpayer fails to declare tax and submit tax payment information, he/she shall be subject to punishment provided in Article 62 of the Law on Tax Collection.

Article 33 If the taxpayer evades or reduces payable tax by forging, altering, disguising, or destroying books and accounting vouchers, or illegally increasing or decreasing income, or refusing to declare tax or submitting false declaration upon receipt of the notice from the tax authority, he/she shall be subject to the punishment provided in Article 63 of the Law on Tax Collection.

Article 34 If the taxpayer falsifies taxable basis, he/she shall be subject to the punishment provided in Item 1 of Article 64 of the Law on Tax Collection.

Article 35 If the person responsible for withholding tax fails to withhold or collect tax as required, he/she shall be subject to the punishment provided in Article 69 of the Law on Tax Collection.

Article 36 If the tax officer engages in fraud or dereliction of duty, and fails to collect or reduce payable tax, he/she shall be subject to the punishment provided in Item 1 of Article 82 of the Law on Tax Collection.

Article 37 If the tax officer abuses power and creates difficulties for taxpayers intentionally, he/she shall be subject to the punishment provided in Item 2 of Article 82 of the Law on Tax Collection.

Article 38 If the tax authority and tax officer fail to hold confidential for taxpayers, they shall be subject to the punishment provided in Article 87 of the Law on Tax Collection.

Article 39 If a tax agent violates laws and administrative regulations, and causes the failure of the taxpayer to pay whole or a part of tax, he/she shall be subject to the punishment provided in Article 98 of the Implementing Rules of the Law on Tax Collection.

Article 40 Other violations of tax laws shall be subject to the punishment provided in relevant tax laws and regulations.

Chapter 8 Supplementary Provisions

Article 41 The tax payment form is printed by the local tax bureau of each province, autonomous region and municipality and city with separate planning in the format as required by the State Administration of Taxation.

Article 42 Other matters relating to tax declaration shall comply with the Law on Tax Collection, the Law on Individual Income Tax and relevant laws and regulations.

Article 43 The provisions concerning tax declaration for annual income of over RMB120,000 as specified in Item (1) of Article 2 hereof will come into effect on January 1, 2006 as required by the Decisions on Modification of the Law of the People’s Republic of China on Individual Income Tax, which was adopted at the 18th meeting of the 10th Standing Committee of the National People’s Congress.

Article 44 The provisions hereof concerning tax declaration for the cases specified in Items (2)-(4) of Article 2 will come into effect on January 1, 2007, and the Circular of the State Administration of Taxation on Printing and Distributing the Provisional Measures Concerning Self-Declaration of Individual Income Tax (GSF[1995] No.077) will be abolished concurrently.

General Office of State Administration of Taxation
Sealed and Issued on November 6, 2006