Circular of the Ministry of Finance and the State Administration of Taxation on Some Policy Issues regarding Personal Income Tax

CaiShuiZi [1994] No. 020

　　In accordance with the relevant provisions of the Law of the People’s Republic of China on Personal Income Tax and its implementing rules， some policy issues regarding personal income tax are clarified as follows：

　　 1. Tax Collection for Individual Businesses

　　 (1) The cost deduction standards for individual business owners and the wage deduction standards for employees are set by the tax bureaus of the provinces, autonomous regions and municipalities directly under the central government. The loan interest expenditure of the individual businesses during the period of production and operation can be deducted as long as they have legal proofs and are not higher than the amounts calculated according to the interest rates of the financial institutions for the loans of the same category and same period.

　　 (2) No personal income tax is collected from the individual businesses or the individuals who are exclusively engaged in planting, breeding, livestock farming and fishing and whose operational projects fall within the scope of the agricultural tax (including the agricultural specialty tax, the same below) and the livestock tax and have paid the agricultural and livestock taxes. If they do not fall within the scope of the agricultural and livestock taxes, they shall pay personal income tax for their incomes. If they operate all the above four occupations and the four occupations are separately accounted, the above principles shall prevail. If they fall within the scope of the personal income tax, they shall pay personal income tax by consolidating with the incomes from the production and operation in other occupations. If the incomes of the four occupations cannot be separately accounted, the personal income tax shall be levied on all their incomes.

　　 (3) For the profits of the individual businesses arising from joint operation with enterprises, the personal income tax shall be levied on the incomes from interests, dividends and bonuses.

　　 (4) If the individual businesses and the individuals engaged in production and operation receive taxable incomes unrelated to the activities of production and operation, they shall separately calculate and pay personal income tax as required.

　　 2. The Following Incomes Are Temporarily Exempted from Personal Income Tax

　　 (1) The housing allowance, food allowance, relocation allowance and laundry charge received by individual aliens in the non-cash form or in the form of full expense reimbursement;
　　 (2) The travel allowance received by individual aliens according to reasonable standards;

　　 (3) The family reunion fee, the language training fee and the children's educational fee received by individual aliens that have been approved by the local tax authorities to be reasonable;

　　 (4) The bonuses received by individuals from reporting and assisting in investigating various illegal and criminal acts;

　　 (5) The withholding commissions legally received by individuals from handling tax withholding formalities;

　　 (6) The income received by individuals from transfer their sole family house that has been used for over five years;

　　 (7) If the senior experts (i.e. the exerts and scholars entitled to special government allowance) have reached the retirement age but have to properly postpone their retirement due to work requirements in accordance with the provisions of the Provisional Regulations of the State Council on Some Issues regarding the Retirement of Senior Experts (GF [1983] No. 141) and the Circular of the General Office of the State Council on Postponing the Approval of the Retirement of the Outstanding Senior Experts (GBF [1991] No. 40), their wage and salary incomes during the postponed retirement period shall be treated as retirement wages and be exempted from personal income tax;

　　 (8) The dividend and bonus incomes received by individual aliens from the foreign-invested enterprises;

　　 (9) The wage and salary incomes received by foreign experts can be exempted from personal income tax if one of the following conditions is met：

　　 A. The foreign experts directly dispatched by the World Bank to work in China in accordance with the World Bank special loan agreements;
　　 B. The experts directly dispatched by organizations of the United Nations to work in China;
　　 C. The experts who have come to work in China for the U.N.-aided projects；
　　 D. The experts dispatched by the donor countries to work in China exclusively for their grant-aided projects;
　　 E. The cultural and educational experts who have come to work in China for no more than two years in accordance with the cultural exchange projects signed between the governments of the two countries and whose wage and salary incomes are borne by their countries;
　　 F. The cultural and educational experts who have come to work in China for no more than two years in accordance with the international exchange projects of China’s institutions of higher learning and whose wage and salary incomes are borne by their countries;
　　 G. The experts who have come to work in China in accordance with the nongovernmental research agreements and whose wage and salary incomes are borne by their government institutions.

　　 3. Deduction of Intermediary Charges

　　 The intermediary charges received by individuals from technological transfer and labor provision can be deducted from their incomes if they can provide valid and legal proofs.

　　 4. Whether personal income tax shall be levied on the interest, dividend and bonus incomes received by individuals from the grass-roots supply and marketing cooperatives and the rural credit cooperatives shall be determined by the tax bureaus of the provinces, autonomous regions and municipalities directly under the central government and be reported to the Ministry of Finance and the State Administration of Taxation for the record.