Notice of the State Administration of Taxation on the Taxpaying Obligations for Salaries of the Individuals without Residence in China (GuoShuiFa [1994] No. 148)

To the tax bureaus of various provinces, autonomous regions and municipalities, the tax bureaus of various cities with independent planning, and various sub-bureaus of the Offshore Oil Tax Administration:

In accordance with the Individual Income Tax Law of the People's Republic of China (hereinafter referred to as Tax Law) and its Detailed Rules for Implementation (hereinafter referred to as Detailed Rules for Implementation) as well as related stipulations of the agreement on the avoidance of double taxation China signs with other countries (hereinafter referred to as tax agreement), we hereby clarify the following question concerning how to determine tax on the wage and salary incomes gained by individuals without residence in the territory of China who hold a post in companies, enterprises and economic organizations (hereinafter referred to as enterprises within China) or agencies and sites as well as permanent organizations (hereinafter referred to as organizations within China) as stated in the tax agreement set up in China by foreign enterprises, or who engage in work within China for being employed or implementing the contract:

I. Concerning determination of the sources of wage and salary income.

In line with the stipulation of Section (1) of Article 5 of the Detailed Rules for Implementation, the wage and salary income originates from the territory of China shall be considered the wage and salary gained by individuals during the period of actual work within China, that is: the wage and salary gained by individuals during the period of actual work within China which are paid by enterprises or individual employers whether inside or outside China, all belong to incomes originate from within the territory of China: the wage and salary gained by an individual during the period of actual work outside China, which are paid by enterprises or individual employers whether inside or outside China, all belong to incomes originate from outside China.

II. Concerning the determination of individual tax payers with no residence within the territory of China but who, within a tax- paying year, live continuously or for an accumulated period of no more than 90 days within the territory of China, or who live continuously or for an accumulated period of no more than 183 days within the territory of China during the period as set in the tax agreement.

In accordance with the related stipulations of Clause 2 of Article 1of the Tax Law, Article 7 of the Detailed Rule for Implementation as well as the Tax Agreement, the wage and salary for the individuals with no residence in the territory of China but who, within a tax-paying year, work continuously or for an accumulated period of no more than 90 days or live continuously or for an accumulated period of no more than 183 days within the territory of China, which are paid by the employers outside China and which are not borne by the organization within China of the said employers, are exempt from declaration for payment of individual income tax.

The above-mentioned individuals shall declare tax payment for the wage and salary incomes gained during the period of their actual work within China, which are paid by the enterprises or individual employers or borne by the organizations within the territory of China. If these enterprises or organizations within China for which enterprise income tax is calculated and levied by the method of appraising and deciding profits or enterprise income tax is not calculated and levied for having no business income, wages and salaries gained by individuals during the period or their actual work in China who assume office in and are employed by the enterprises or organizations within China, which, whether are or are not recorded in the account books of the enterprises or organizations within China, shall all be regarded as wages and salaries paid by enterprises within China or borne by the organizations within China. The above-mentioned individuals shall declare tax payment within the time limit as set in the Tax Law for their monthly payable tax.

III. Concerning determination of tax payment by individuals without residence within the territory of China but who, in the tax-paying year, live continuously or for an accumulated period not more than 90 days or live continuously or for an accumulated period exceeding 183 days but less than one year within the territory of China during the period specified in the tax agreement.

In accordance with the related stipulations of Clause 2 of Article 1 as well as the tax agreement, the individuals without residence within the territory of China but who, within the tax- paying year, work continuously or for an accumulated period exceeding 90 days within China or who, during the period as set in the tax agreement, live continuously or for an accumulated period exceeding 183 days but less than one year within the territory of China, shall all declare payment of individual income tax on the wage and salary income gained during the period of the actual work in China paid by the enterprises or individual employers within China and by enterprises or individual employers outside China; the wage and salary income they gained during the period of their work outside China, with the exception of what is stipulated in Article 5 of the Circular, are exempt from individual income tax.

The above-mentioned individuals shall declare payment of the monthly payable tax in accordance with the time limit as stipulated in the Tax Law. Individuals, who have wage and salary income paid by employers outside China and not borne by the organizations within China, may predetermine that within the taxpaying year they live continuously or for an accumulated period exceeding 90 days or live continuously or for an accumulated period exceeding 183 days within the period as specified in the tax agreement, they shall declare payment for the monthly payable tax within the time limit specified in the Tax Law; individuals, who cannot predetermine that within the tax-paying year or during the related period as set in the tax agreement, live continuously or for an accumulated period exceeding 90 days or 183 days, may, within seven days of the following month after reaching 90 days or 183 days, declare tax payment together with the payable tax of the previous month.

IV. Concerning determination of tax payment by individuals without residence within the territory of China but who have lived in China for a full year.

In accordance with the stipulation of Clause 1 of Article 1 of the Tax Law and Article 6 of the Regulations for Implementation, individuals without residence within the territory of China but who have lived in China for a full year but not exceeding five years shall all declare payment of individual income tax on the wages and salaries gained by them during the period of their work in China and paid by the enterprises or individual employers within China and by enterprises or individual employers outside China. An individual who has wage and salary income gained during the period of work when he temporarily leaves China as stated in Article 3 of the Regulations for Implementation shall declare payment of tax only on the part paid by enterprises or individual employers within China. If enterprises and organizations within the territory of China which calculate and levy enterprise income tax by adopting the method of verifying profit or those which do not have business income and therefore enterprise income tax is not levied, the wage and salary gained by individuals who assume office in or are employed by the enterprises or organizations within China, no matter whether or not recorded in the account books of the enterprises or organizations within China, shall all be regarded as paid by the enterprises or organizations within China where they assume office.

The above-mentioned individuals who, within one month, has both wage and salary income gained during the period of work within China and wage and salary income gained during the period when they temporarily leave China and paid by the enterprises or individual employers within China, shall have the month’s payable tax calculated for both incomes and declare tax payment within the time limit as set in the Tax Law.

V. Concerning determination of tax payment directors and high- level managerial personnel within China.

For individuals who take the post as directors or high-level managers of 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 past 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.

VI. The calculation of payable tax on the wage and salary income gained in less than one month

Individuals fit in with the situation as mentioned in Articles 2, 3, 4 and 5 of this Circular who declare payment for the wage and salary incomes gained during the period of less than one month shall have the actual payable tax amount calculated for the wage and salary income in line with a full month, the formula for calculation is as follows:

Payable tax amount = The amount of payable tax on current wage & salary income X

Applicable tax rate - Rapid calculating deducting number X (Actual days in China in the month / Days in the month)

If what an individual of the above-mentioned case receives is daily wage and salary, the daily wage and salary should be multiplied by the number of days in the current month and, after being converted into monthly wage and salary, the above-mentioned formula should be followed in calculating the payable tax amount.

VII. The stipulations of this Circular takes effect from July 1, 1994. If the content of previous regulations is different from the content of the stipulations of this Circular, the matter shall be carried out in accordance with the stipulations of this Circular.