Detailed Rules for Implementation of the Individual Income Tax Law of the People's Republic of China

Article 1 These Rules are formulated in accordance with the Individual Income Tax Law of the People's Republic of China (hereinafter referred to the "Tax Law").

Article 2 "Individuals who have domicile in China" in Paragraph 1 of Article 1 of the Tax Law, refers to individuals who by reason of their permanent registered address, family or economic interests, habitually reside in the People's Republic of China.

Article 3 For the purposes of the first paragraph of Article 1 of the Tax Law, the term "have resided for one year or more in China " means to have resided within the People's Republic of China for 365 days in a Tax Year. No deductions shall be made from that number of days for temporary trips out of the People's Republic of China .

For the purposes of preceding paragraph, the term "Temporary Trips out of the People's Republic of China" means absence from the People's Republic of China for not more than 30 days during a single trip, or not more than a cumulative total of 90 days over a number of trips, within the same Tax Year.

Article 4 "Income derived from sources within China" of Paragraphs 1 and 2 of Article 1 of the Tax Law, refers to income of which the source is inside the People's Republic of China, and the term "from sources outside China" means income of which the source is outside the People's Republic of China.

Article 5 The following income, whether the place of payment is inside the People's Republic of China or not, shall be income derived from sources inside the People's Republic of China .

A. income from personal services provided inside the People's Republic of China because of the tenure of an office, employment, the performance of a contract, etc.;

B. income from the lease of property to a lessee for use inside the People's Republic of China ;

C. income from the assignment of property such as buildings, land use rights, etc. inside the People's Republic of China or the assignment inside the People's Republic of China of any other property;

D. income from the licensing for use inside the People's Republic of China of any kind of licensing rights;

E. income from interest, dividends and extra dividends derived from companies, enterprises and other economic organizations or individuals inside the People's Republic of China .

Article 6 For income derived from sources outside the People's Republic of China of individuals not domiciled in the People's Republic of China, but resident for more than one year and less than five years, subject to the approval of the tax authorities-in-charge, individual income tax may be paid on only that part which was paid by companies, enterprises or other economic organizations or individuals which are inside the People's Republic of China. Individuals who reside for more than five years shall, commencing from the sixth year, pay individual income tax on the whole amount of income derived from sources outside the People's Republic of China .

Article 7 For individuals who are not domiciled in the People's Republic of China, but who reside inside the People's Republic of China consecutively or accumulatively for not more than 90 days in any one Tax Year, their income derived from sources inside the People's Republic of China which is paid by an employer outside the People's Republic of China, and which is not borne by the employer's establishment or business place within the People's Republic of China, shall be exempt from individual income tax.

Article 8 The scope of the categories of income mentioned in Article 2 of the Tax Law shall be as set forth below.

A. The term "income from wages and salaries" refers to wages, salaries, bonuses, year-end extras, profit shares, subsidies, allowances and other income related to the tenure of an office or employment that is derived by individuals by virtue of the tenure of an office or employment.

B. The term "income from production or business operation derived by individual industrial and commercial households" shall mean the following:

a. income derived by individual industrial and commercial households from engagement in industry, handicrafts, construction, transportation, commerce, the food and beverage industry, the service industry, the repair industry and production and business in other industries;

b. income derived by individuals from engagement, with approval from the relevant government authorities and after having obtained licenses, in the provision of educational. medical, advisory and other services activities for consideration;

c. other income derived by individuals from engagement in individual industrial and commercial production and business;

d. all taxable income related to production and business of the above individual industrial and commercial households and individuals.

C. "Income from contracted or leased operation of enterprises or institutions" refers to income derived by individuals from contracted or leased operations, or from assigning such contracts or leases, including income of a wage or salary nature derived by individuals on a monthly basis or from time to time.

D. "Income from remuneration for personal services" refers to income derived by individuals from engagement in design, decoration, installation, drafting, laboratory testing, other testing, medical treatment, legal accounting, advisory, lecturing, news, broadcasting, translation, proofreading, painting and calligraphic, carving, moving picture and television, sound recording, video recording, show, performance, advertising, exhibition and technical services, introduction services, brokerage services, agency services and other personal services.

E. "Income from author's remuneration" refers to income derived by individuals by virtue of the publication of their works in books, newspapers and periodicals.

F. "Income from royalties" refers to income derived by individuals from provision of the right to use patent rights, trademark rights, copyrights, non-patented technology and other licensing rights. Income from provision of the fight to use copyrights shall not include income from author's remuneration.

G. "Income from interest, dividends and extra dividends" refers to income from interest, dividends and extra dividends that is derived by individuals by virtue of their possession of creditor's rights and share rights.

H. "Income from lease of property" refers to income derived by individuals from the lease of buildings, land use rights, machinery, equipment, means of transportation and other property.

I. "Income from transfer of properly" refers to income derived by individuals from the assignment of negotiable securities, share rights, structures, land use rights, machinery, equipment, means of transportation and other property.

J. "Contingent income" refers to income derived by individuals from winning awards, prizes and lotteries and other income of an occasional nature.

Income derived by individuals for which the taxable category is difficult to determine shall be decided upon by the tax authorities-in-charge.

Article 9 Measures for the levy and collection if individual income tax on income from the transfer of shares shall be separately formulated by the Ministry of Finance and implemented upon approval by the State Council.

Article 10 Taxable income derived by individuals shall include cash, physical objects and negotiable securities. If the income is in the form of physical objects, the amount of taxable income shall be determined according to the price specified on the voucher obtained. If there is no receipt for the physical objects or if the price specified on the voucher is obviously on the low side, the tax authorities-in-charge shall determine the amount of taxable income by reference to the local market price. If the income is in the form of negotiable securities, the amount of taxable income shall be determined by the tax authorities-in-charge according to the face value and the market price.

Article 11 For the purposes of item (4) of Article 3 of the Tax Law, the phrase "a specific payment of income from remuneration for personal service is excessively high" shall mean a payment received as remuneration for personal service with an amount of taxable income exceeding RMB 20000.

That part of taxable income as mentioned in the preceding paragraph which exceeds RMB 20000 but does not exceed RMB 50000 shall, after the amount of tax payable is calculated in accordance with the Tax Law. Be subject to an additional levy at the rate of 50% of the amount of tax payable. That part which exceeds RMB 50000 shall be subject to an additional levy at the rate of 100 % of tax payable

Article 12 "Interest on national debt obligations" of item (2) of Article 4 of the Tax Law refers to interest income received by individuals by virtue of holding bonds issued by the Ministry of Finance of the People's Republic of China, and the term "interest on financial debentures issued by the State" refers to interest income derived by individuals by virtue of holding financial bonds issued with State Council approval.

Article 13 "Subsidies and allowances paid in accordance with uniform regulations of the state" in item (3) of Article 4 of the Tax Law refers to special government subsidies issued in accordance with State Council regulations and allowances and subsidies that are exempt from individual income tax by State Council regulations.

Article 14 "Welfare benefits" of item (4) of Article 4 of the Tax Law refers to cost-of-living subsidies paid to individuals according to relevant state regulations out of the welfare benefits or labor union funds allocated by enterprises, institutions, government agencies and social organizations, and the term "relief payments" means hardship subsidies paid to individuals by civil affairs authorities of the state.

Article 15 For the purposes of item (8) of Article 4 of the Tax Law, the "income derived by the diplomatic agents, consular officers and other personnel who are exempt from tax under the provisions of the relevant Laws of China" refers to income that is tax-exempt under the Regulations of the People's Republic of China Concerning Diplomatic Privileges and Immunities and the Regulations of the People's Republic of China concerning Consular Privileges and Immunities.

Article 16 The ranges and periods of the reductions in individual income tax referred to in Article 5 of the Tax Law shall be stipulated by the People's Governments of the provinces, autonomous regions and municipalities directly under the Central Government.

Article 17 For the purposes of item (2) of the first paragraph of Article 6 of the Tax Law, the terms "costs" and "expenses" mean all direct expenditures, indirect expenses allocated as costs, as well as marketing expenses, administrative expenses and financial expenses incurred by taxpayers while engaging in production and business, and the term "losses" means all non-operating expenditures incurred by taxpayers in the course of production and business.

If a taxpayer engaging in production or business fails to provide complete and accurate tax information and is unable to correctly calculate the amount of taxable income, his amount of taxable income shall be determined by the tax authorities-in-charge.

Article 18 For the purposes of item (3) of the first paragraph of Article 6 of the Tax Law, the term "the gross income in a tax year" means the share of the operating profit or the income of a wage or salary nature derived by the taxpayer according to the contract for the contracted or leased operation and the term "deduction of necessary expenses" means a monthly deduction of RMB 800.

Article 19 For the purposes of item (5) of the first paragraph of Article 6 of the Tax Law, the term "the original value of the property" means:

A. in the case of negotiable securities, the price for which they were purchased and related expenses paid according to regulations at the time of purchase;

B. in the case of buildings, the construction expenses or purchase price, and other related expenses;

C. in the case of land use rights, amount paid to acquire the land use rights, land development expenses and other related expenses;

D. in the case of machinery, equipment, vehicles and vessels, the purchase, freight, installation expenses and other related expenses;

E. in the case of other property, the original value shall be determined by reference of the above methods.

If a taxpayer fails to provide complete and accurate vouchers concerning the original value of the property and is unable to correctly calculate the original value of the property, the original value of the property shall be determined by the tax authorities-in-charge.