Provisions for the Reduction and Exemption of the Individual Income Tax

I. The following categories of income shall be exempted from individual income tax:

1. Awards for achievements in science, education, technology, culture, public health, physical culture and environmental protection granted by the provincial people's governments, ministries and commissions under the State Council, the People's Liberation Army Units at army level and above and by foreign or international organizations

2.  Interest accruing from treasury bonds and financial bonds issued by the State; Interest accruing from financial bonds refers to interest accruing from bonds issued by the Minstry of Finance; Interest accruing from treasury bonds refers to interest accruing from bonds approved by the State Council.

3. Subsidies and allowances received under the State uniform provisions ;

4.  Welfare benefits, pensions for the disabled or for the family of the deceased and relief payment; Welfare benefits refer to grant-in-aid paid to individual from welfare founds of enterprises or union fee of State organs and units financed by financial fund allocation.

5.  Insurance compensation;

6. Military severance pay and demobilization pay for military personnel;

7. Settling-in allowance, severance pay, retirement wages, retirement wages for veteran cadres, and living allowances and subsidies for retired veteran cadres distributed to cadres and workers according to the unified regulations of the State;

8.  Income of diplomatic representatives, consular officers and other personnel of foreign embassies and consulates in China, which, pursuant to the provisions of ??Regulation of the People's republic of China concerning consular privileges and immunities?? and ??Regulation of the People's republic of China concerning diplomatic privileges and immunities??, shall be exempt from tax;

9.  Incomes which shall be exempt from tax under the international conventions to which the Chinese Government is a member or agreements which the Chinese Government has signed; and

10.  Incomes which are approved to be exempt from tax by the financial department of the State Council.

 

Industrial and commercial house-holds or individuals engaged in planting, breeding, animal raising and fishing shall be exempt from individual income tax if their services are subject to agricultural tax (including agricultural specialties tax) or animal husbandry tax, those not in the scope of agricultural tax or animal husbandry tax shall be levied on individual income tax.

 

For taxpayers dealing with different items mentioned above, income which be accounted separately shall follow the above principles.

 

Income subject to individual income tax and income form production and business operations of other businesses shall be jointly subject to individual income tax.

 

Income which cannot be accounted separately shall pay individual income tax in full amount.

 

II. The following categories of income shall be temporarily exempted from individual income tax:

1.  accommodation allowances, food allowances, moving allowances, laundry allowance derived by foreign expatriates in non-cash form.

 

2. Allowances for business trip both in china and abroad derived by foreign expatriates in a reasonable standard.

 

3. Relatives visiting expenses, language training expenses and child-education expense derived by foreign expatriates.

 

4. Dividends and bonuses from foreign investment enterprises derived by foreign expatriates

 

5.  Wages and salaries derived by foreign experts set forth below shall be exempt from individual income tax:

(1) Foreign experts sent directly by the World Bank in accordance with the World Bank specialized loan agreement with China .

(2) Foreign experts sent directly by originations of the United Nations.

(3) Foreign experts of aid projects by the United Nations.

(4) Foreign experts of aid projects by nations that provide aids.

(5) Wages and salaries derived by foreign cultural and educational experts paid by the contracting states in accordance with a special program for cultural exchange agreed upon by the governments of both Contracting States within 2 years.

(6) Wages and salaries derived by foreign cultural and educational experts paid by the contracting states in accordance with a special program for cultural exchange agreed upon by the colleagues of both Contracting States within 2 years.

(7) Wages and salaries derived by foreign experts paid by the contracting states in accordance with civil technological agreements.

 

6. Rewards for reporting criminal acts and assassinating criminal investigations by individuals.

 

7.  Handling fee derived from individual income tax withheld by individuals.

 

8.  Income from transfer of the only self-used real estate over 5 years.

 

9. Income less than RMB 100,00 from wining welfare or sports lotteries shall be exempt from individual income tax; Income over RMB 100,00 shall pay tax in full amount.

 

10. Wages and salaries derived by senior experts (experts or scholars who enjoy governmental special allowances issued by the State) who reached retirement age and still at work as needed.

 

11. Individual income tax may be exempt for the lump-sum settlement payment for the employees of the enterprise announced bankrupt in accordance with related laws and regulations of the State.

 

12. For the lump sum payment of compensation received by individuals for termination of work contract with the employers (including economic compensation payment, living subsidy and other subsidies), the portion in excess

 

13. Individual income tax shall be exempt for the house reserves, health insurance and basic aged pensions drawn within the percentage specified by the State or local government and paid to the designated financial institutions by enterprises and individuals and unemployment insurance drawn as the percentage specified by Unemployment Insurance Regulation. The above items should be excluded in the wages and salaries of the current period.

 

14. For individual receiving the drawn-and-deposited house reserves, health insurance and basic aged pension as well as laid-off workers receiving the unemployment insurance in accordance with Unemployment Insurance Regulations, the above items shall be exempt from individual income tax.

 

15. The interest income derived from educational savings or individual account savings of house reserve, health insurance, basic aged pension and unemployment insurance shall be exempt from individual income tax.

 

16. The individual income earned by transferring the stock of listed companies shall be exempt from individual income tax temporarily.

 

17. Certain tax exemption may be given on the business income and the remuneration from personal services earned by laid-off workers engaged in community services. Individual income tax shall be exempt on above items for 3 years since the date of individual engaged in business or production acquiring taxation registration license or since the date of individual engaged in independent works putting his laid-off license in local taxation administration on record. But after the expiration of the first tax-exemption period, high-than-country-level taxation administration have to examine the individual and range of tax-exemption annually in accordance with the relevant regulations and only qualified individual may be exempt from tax for 1-2 years.

 

Definition and tax-exemption range is : (1) house cleaning and sanitation services; (2) primary hygiene services; (3) infant nursing and teaching services; (4) educational training and baby-sitting of disable children; (5) providing services for the aged; (6) patient nursing and student picking-up services (excluding taxi picking-up); (7) consultation for contraception and birth-control; (8) consultation for prepotency, eugenics and high-quality education; (9) replacing gas, delivering milk, books and papers; (10) tutor and nursery on noon break and after school, keep-watching buildings and keeping bicycles; (11) hair-cut, shoeshine, sight photograph (excluding indoor photograph).

 

18. Individual income derived from soldering pan and boiler, silhouetting, shoe-shining, weighting, grubbing helosis, ghostwriting letters, keeping bicycles, castrating poultry, ferrying (immobile), knife-grinding, butchering, pick aback transport, amending umbrella, may be exempt from Individual Income Tax.

 

III. Preferential Policies of Individual Income Tax on donation to education and other social public welfares.

Developing and supporting edbiz is a basic national policy, which should be highly encouraged. Social welfare, such as medical treatment, related to national people's health, should also be encouraged. Thus, the individual donation on education and other social welfares should be applied proper deduction concerning individual income tax. According to China's situation and international convention, the revised version of individual income tax law clearly prescribes: individual donation made through domestic non-profit social organization and national department, to education and other social welfares as well as severe nature disastered and poor areas, when the donation doesn't exceed 30% of its tax payable, the donation should be deducted from taxable incomes. Individual donation made through domestic non-profit social organizations and national departments to compulsory education institutions in the countryside, non-profit service organizations for the aged, communal juvenile activity center, Red Cross undertakings etc. Due to the classified tax system in terms of individual income tax in China, the donation shall be deducted from its corresponding category, and then calculated its individual income tax according to the proper tax rate.

 

IV. Preferential Policies on the R & D Expenditures of Scientific Research Institutions and Universities

Individual incomes (not including accidental earnings and other incomes clearly defined by the financial department of the State Council to be taxable) used for funding purpose, in the case of being able to levied in full amount in the next month (salary or wage) or next time, or in the year, shall be deducted from the taxable income. If not sufficient to be deducted, the income can not be carried forward.

 

V. Tax Reduction Items

Individual income tax may be deducted on the following items:

(1) The income earned by the disabled, unsupported aged persons and members of martyr's family.

(2) The taxpayers suffering heavy losses caused by huge natural disasters.

(3) Other cases in which reduction is approved by the financial department of the State Council.

 

The ranges and time limit of (1) and (2) items shall be determined by the People's Government at the provincial level.