The Notice on Implementation of the Tax Agreement by the Individuals and the Issues of Individual Income Tax

GuoShuiFa [2004] No. 97

To the State Administration of Taxation Bureaus, the local taxation bureaus and all the divisions in each bureau in all provinces, autonomous regions, municipalities and city specifically designated in the State plan: 　　

In accordance with “Individual Income Tax Law of the People’s Republic of China?hereinafter referred to as Tax Law), its implementation regulations and the taxation agreement or arrangement signed by and between China and relevant countries or regions (hereinafter referred to as agreement or arrangement), we hereby issue the notice on implementation of the taxation policy on the individuals without a fixed abode within the territory of China as follows:

1. How to compute the number of days that an individual has stayed in China when determining tax liabilities

We have to count the number of days an individual of no fixed abode has actually stayed in China to determine his or her tax liabilities pursuant to tax law and agreement or arrangement. An individual who enter and depart China once or several times within one day will be considered to have stayed in China for one day.

2. How to count the day in which an individual has entered or left China into the working period he or she has actually worked in China

The individual of no fixed abode who is employed by institutions inside and outside China or only employed by an institution outside China will be considered to have worked in China for half a day if he or she has entered and left China once or several time within one day pursuant to Article 1 of “The Notice of State Administration of Taxation on Determination of Individual Income Tax for the Individuals staying China without a fixed abode.?(Guo Shui Fa [1995] No. 125 ).

3. The formula for computation of the tax payable by tax payers with different tax liabilities

(1) To the tax payer specified in Article 2 to Article 5 of “The Notice of State Administration of Tax Payment for Wage and Salary Income Gained by Individuals without fixed abode within the territory of China?(Guo Shui Fa [1994] No. 148 ) the following formula for computation of their taxes payable shall be applied:
Payable tax income on the salary made
Taxable income =-----------------------------------------------------　X applicable tax rate
in and outside China in the current month
(2) To the individual with the tax liabilities as specified in Article 3 of the document Guo Shui Fa [1994] No.148 , the following formula specified in Article 6 of document Guo Shui Fa [1994] No.148 shall apply:
Payable tax income on the salary made
Taxable income =--------------------------------------------------------X applicable tax rate
in and outside China in the current month
(3) To the individual with the tax liabilities as specified in Article 4 or Article 5 of the document Guo Shui Fa [1994] No.148 , the following formula specified in Article 4 of document Guo Shui Fa [1995] No.,125 shall apply:
Payable tax income on the salary made
Taxable income =-------------------------------------------------------- X applicable tax rate
in and outside China in the current month
If the above mentioned individual makes salary for one day or less than a month, the payable tax will also be computed on the basis of conversion to monthly salary pursuant to article 6 and article 2 of the document Guo Shui Fa [1994] No. 148 by using the above mentioned formula.

4. The issue of application of the agreement or arrangement for senior management staff of enterprises

For an individual without fixed abode who works as an officer of an enterprise in China and enterprise officers are not expressly specified in the provisions relating to director fee in the agreement or arrangement between the country or region he or she live and China, his or her tax liabilities shall be determined pursuant to the provisions in connection to the labor of dependent individuals and article 2, 3 and 4 of the document Guo Shui Fa [1994] No.148
The tax liabilities of an individual without fixed abode who works as an officer and director in an enterprise in China or enjoys the right and interest of a director though he or she is take the office shall be determined by the salary he or she made in the enterprise in China including the income in the name of director or officer pursuant to the provisions in respect to director fee and article 5 of the document Guo Shui Fa [1994] No.148,.

5. This notice will come into effect from July 1, 2004. Should the previous provisions be in contravention of this notice, this notice will prevail.