Transcript Chapter 18 Tax law

Chapter 18 Tax law
1
2
3
4
5
Overview
Income tax
Turnover tax
Land appreciation tax
Taxation administration
1 Overview
1.1 Concept
(1) Compulsory
(2) Gratuitous
(3) Fixity
1.2 Types of taxes
• 1994 tax law reform 32 types of industrial and commercial
tax were reduced to 22 falling into 5 categories
Types of taxes
Categories
Subcategories
Individual income tax
Income tax Enterprise income Domestic enterprises income tax
tax
FIEs and foreign enterprises income tax
VAT
Business tax
Turnover tax Consumption tax
Tax rates
5-45%; 5-35%
33%
33%
17%; 13%;0
3-20%
3-45%
Customs duty
Real property tax
Property tax Land appreciation tax
Deed tax
Resources tax Resources tax
Stamp tax
Adjustment tax on fixed asset investment
Vehicle and vessel use tax
Vessel tonnage tax
Activities tax Slaughter tax
Urban land use tax
Urban maintenance and construction tax
Farming land occupancy tax
Securities trading tax
1.2-12%
30-60%
6%
1-7%
1.3 Sources of law
Sources of tax law
Taxation
Income tax
Turnover tax
Property tax
Name of legislation
Issuance authorities
Issuance time
TAL
SCNPC
1992, 1995, 2001
TAL Regs
State Council
1993, 2002
IITL
NPC, SCNPC
1980, 1993, 1999
IREIT
State Council
1993
FIEITL
NPC
1991
IRVAT
State Council
1993
IRBT
State Council
1993
IRCT
State Council
1993
SCNPC Decision
SCNPC
1993
IRLAT
State Council
1993
1.3.1 Unified taxation law
1.3.2 Income tax laws
1.3.3 Turnover tax laws
1.3.4 Land appreciation tax law
2 Income tax
2.1 Individual income tax
2.1.1 Taxpayers
• Fiscal residence and the source of the income when
determining tax jurisdiction
• Individual having domicile in China or having resided
in China for 1 year or more in absence of domicile
shall pay tax for incomes sourced in and out of China
• Those not residing in China in absence of domicile or
residing in China for less than 1 year in absence of the
domicile shall pay tax only for the incomes sourced in
China
2.1.2 Taxable incomes
(1) wages and salaries
(2) IICH’s incomes from production and business operation
(3) incomes from contracting management or leasing
management of enterprises or institutions
(4) service remuneration
(5) copyright royalty
(6) royalty
(7) incomes from interest, dividends and bonuses
(8) incomes from property leasing
(9) incomes from property transfer
(10) accidental incomes
(11) other incomes to be taxed depending upon the decision
by the MOF
2.1.3 Tax rate
Tax rate of individual income tax
Monthly taxable salary
Tax rate
Annual taxable
income
Tax rate
1
<RMB 500
5%
<RMB5000
5%
2
RMB500-2000
10%
RMB5000-10000
10%
3
RMB2000-5000
15%
RMB10000-30000
20%
4
RMB5000-20000
20%
RMB30000-50000
30%
5
RMB20000-40000
25%
> RMB50000
35%
6
RMB40000-60000
30%
7
RMB60000-80000
35%
8
RMB80000-100000
40%
(1) Wage & salary: RMB
800.
(2) Incomes of IICHs:
expenses, costs and
losses deductible.
(3) Incomes for
contracting & leasing
management: reasonable
fees deductible.
9
> RMB100000
45%
Copyright royalty
20%
30%
Service remuneration, royalty
20%
Incomes from property transfer
20%
Original value and
reasonable fees
Incomes from interest, dividends and bonuses
20%
╳
Deduction
<RMB 4000: RMB 800
>RMB 4000: 20%
2.1.4 Tax exemption and deduction
2.1.4.1 Tax exemption
(1) awards in science, education, technology, culture, health, physical
sports and environmental protection granted by provincial
government, ministries or commissions under State Council or
above and foreign organisation and international organisation
(2) interest of bank savings, and interest of treasury bonds and
financial bonds issued by the State
(3) subsidies and allowances granted according uniform standard of
the State
(4) welfare money, survivor's pensions and relief payment
(5) insurance indemnities
(6) military severance pay and demobilization pay for soldiers of the
armed forces
(7) severance pay, retirement salaries and life subsidies for retired
cadres and staff granted in accordance with uniform standard of
the State
(8)incomes of diplomatic officials, consular officials and other
personnel of foreign embassies and consulate in China which
should be free from tax under the law of China
(9) incomes which shall be free from tax in accordance with
international conventions acceded to by China and bilateral
agreement concluded by China
(10) other incomes which the financial department under the State
Council approves to exempt from tax.
2.1.4.2 Scope of deduction
2.1.5 Tax credit
If the taxpayer obtains incomes outside of China, taxes paid
outside of China for that part of incomes may offset taxes in
China for that part of incomes.
2.2 Enterprise income tax
2.2.1 Taxpayers
(1) SOEs
(2) collective enterprises
(3) private enterprises
(4) jointly operated enterprises
(5) CLS and LLC
(6) other entities obtaining incomes from production
and business operation and other incomes
2.2.2 Taxable incomes
(1) incomes from production and business operation
(2) incomes from property transfer
(3) incomes from interest
(4) incomes from leasing
(5) incomes from royalty and licensing fees
(6) incomes from dividends
(7) other incomes
2.2.3 Scope of deductions
Costs, expenses and losses related to the incomes of taxpayer
are deductible
Not deductible items:
(1) expenditure of a capital nature
(2) expenditure on acquisition and development of intangible
assets
(3) fines in relation to illegal business operation and losses
incurred on confiscation of property
(4) surcharge on over due tax payments, fines and penalties in
relation to various types of taxes
(5) the portion of losses incurred due to natural disasters or
accidents covered by compensations receivable
(6) donations for community benefits and charitable donations
in excess of deductible amounts; and donations other than
those for community benefits or charitable donations
(7) expenditure for any sponsorship, which refers to one for
non-advertisement purpose
(8) other items of expenditure not incurred in the earning the
income
2.2.4 Tax rate
33%
2.2.5 Tax credit
If taxpayer obtains incomes outside of China, taxes
paid outside of China for that part of incomes may
offset taxes in China for that part of incomes
2.3 FIEs and foreign enterprises income tax
2.3.1 Taxpayers
(1) SFEJVs
(2) SFCJVs
(3) WFOEs
(4) foreign companies and other economic entities having
establishments or sites in China and engaging in
production or business operations, and those having
income sources within China in absence of
establishments or sites in China.
2.3.2 Taxable income
(1) incomes from production and business operations of the FIEs
and foreign enterprises having establishments and sites in China,
as well as profits (dividends), interests, rents, royalties and other
earnings sourced inside and outside China and actually related to
their establishments or sites in China
(2) the following incomes of foreign enterprises not having
establishments in China:
(a) profits (dividends) obtained from enterprises inside China
(b) interests on savings, loans, bonds, payments for others or
deferred payments in China
(c) rents from property leasing in China
(d) royalties from assignment and licensing of patent, know-how,
trademarks and copyrights in China
(e)other incomes sourced inside China deemed to be taxed by MOF
2.3.3 Tax rate
30% + 3% local income tax
2.3.4 Tax preferential treatment
2.3.4.1 Tax incentives for foreign investments
(1) Deduction and exemption for manufacturing FIEs
(2) Geographic and industrial reduction for FIEs and
foreign enterprises
(3) Tax refund
(4) Deduction of withholding tax
(5) Local preferential treatments
2.3.4.2 Tax incentives for additional foreign
investments
3 Turnover tax
3.1 VAT
3.1.1Taxpayers
Any entity or individual selling goods or providing services of
processing, repairing and supplying replacements or importing
goods in China shall pay VAT.
3.1.2 Tax rate
VAT rates
Sector of trades
Tax rate
Selling or importing most goods
17%
Selling or importing five specific types of goods
13%
Exporting goods
Such service as processing, repairing and supplying replacements
0
17%
3.1.3 Tax calculation
Taxable sales volume = sales volume inclusive of tax
1 + tax rate (17%)
If taxpayer sells RMB100 worth of goods, in which the tax
at the sales level is included, thus the taxable sales volume
is RMB85.47 rather than RMB100. The VAT at the sales
level is RMB14.529 instead of RMB17.
Small-scale taxpayers: 6%
3.1.4 Tax exemption
(1) agricultural products sold by producer itself
(2) contraceptive
(3) antiquated books
(4) imported devices and equipment to be directly used in
scientific research and experiment and education
(5) imported materials and equipments gratuitously given by
foreign governments or international organizations
(6) imported equipment for compensation trade and
processing with overseas customers materials and
assembling with overseas customers parts
(7) articles imported directly by organizations of the
handicapped people and used for the handicapped people
specially
(8) selling one's own second hand articles
3.1.5 Tax authority
• Regular taxpayer: pay tax to competent tax authority at
location of its organization
• If head office and branch are located in different county,
pay to their respective competent tax authority where they
are located
• Upon approval by SAT, the tax may be paid together to the
competent tax authority at the location of the head office
• Irregular taxpayer: pay tax to competent tax authority
where the goods are sold
• Import of goods: pay to Customs
3.1.6 Implications for FIEs
3.2 Business tax
3.2.1 Taxpayers
Any entity or individual providing certain category of
services, assigning intangible assets or selling immovable
property shall pay business tax.
3.2.2 Tax rate
Business tax rates
Sector of business
Tax rate (%)
Communication and transportation, construction, post and
telecommunications and culture and sports
3
Banking and insurance, service trades, assigning intangible assets
and selling immovable property
5
Entertainment
5-20
3.2.3 Tax calculation
• Sum of business tax is the sum of business volume
multiplied by tax rate
• In principle no deductions are allowed for business
volume
• 6 circumstances allowing deductions:
(1) transportation entity transports goods or passengers out of China
and changes the goods or passengers to other transportation
entities, the business volume shall be the remaining sum of total
freight by deducting those fees paid to the latter carrier
(2) travel entity sends touring party out of China and changes to
other travel entities, its business volume shall be the remaining
sum of total fees by deducting the those fees paid to the latter
travel entities
(3) if contractor subcontracts its project to others, its business volume
shall be the remaining sum of the total prices of contract by
deducting prices paid to subcontractor
(4) for sub-loan business, the business volume shall be the remaining
sum of the interest of loan by deducting interest of lending
(5) for buying and selling business of foreign exchange, securities and
futures, the business volume shall be the remaining sum of selling
price by deducting purchase price
(6) other circumstances provided by MOF
3.2.4 Tax exemption
• Should business volume not reach the minimum standard
of business tax starting point, such business tax is exempted
• 6 categories of services exempted from business tax
3.2.5 Tax authority
• Taxable services: tax authority where the service is offered
• Transportation: competent tax authority at location of its
organization
• Land-use-rights assignment, competent tax authority at
location of the land
• Transfers other intangible assets, competent tax authority
at the location of its organization
• Sale of immovable property, competent tax authority at
location of immovable property
3.3 Consumption tax
It only applies to 11 categories of products
3.3.1 Taxpayers
Any entity or individual producing, manufacturing for
commission order and importing consumer goods
prescribed by IRCT shall pay the consumption tax
3.3.2 Taxable consumer goods and tax rate
Consumption tax rates
Applicable goods
Millet wine
Tax rate
RMB 240/T
Specific Beer
tax
Gasoline
RMB 220/T
Diesel oil
RMB 0.1/L
Cigarettes
Class A: 45%; class B and cigar: 40%; cut
tobacco: 30%
Liquor and alcohol
Cereal spirit: 25%; potato spirit: 15%; other
liquors: 10%; alcohol, 5%
RMB 0.2/L
Cosmetics
30%
Ad
valorem Skin & hair products 17%
tax
Valuable jewellery
10%
Firecrackers
15%
Motorcycles
10%
Car
Sedan cars: 3-8%; cross country vehicles &
mini-bus: 3-5%
3.3.3 Tax calculation
• If taxable consumer goods produced by taxpayer are sold,
it shall be taxed in the sales level.
• Sum of CT: sum of sales volume multiplied by tax rate or
unit tax
3.3.4 Tax authority
• Competent tax authority where taxpayer’s business
accounting is carried out
• Taxable consumer goods for commission order, competent
tax authority at location of agent.
• Imported taxable consumer goods: Customs where goods
are declared
4 Land appreciation tax
4.1 Taxpayers
Any entity of individual obtaining incomes from
assignment of right to use State owned land buildings
and facilities shall pay land appreciation tax
4.2 Taxable value-addition and
scope of deduction
Value-addition: the remaining sum of incomes sourced from
real estate assignment including incomes in cash, in kind
and other revenues
Deductible items:
(1) payment for acquisition of land-use-rights
(2) costs and expenses of land development
(3) costs and expenses of new buildings and their coordinate
facilities, or evaluated prices of used houses and buildings
(4) taxes and charges related to assignment of real estate
(5) other deductible items prescribed by the MOF
4.3 Tax rate
Land appreciation tax rates
Value addition
Progressive tax rate
1
Value addition ≤50%
30%
2
51%≤Value addition≤100%
40%
3
101%≤Value addition≤200%
50%
4
200%< Value addition
60%
4.4 Tax exemption
• Taxpayer builds residences of ordinary standard whose value
addition does not exceed 20% of the sum of deductible items,
the land appreciation tax is exempted
• Should real estate is taken back or expropriated by State
according to prescribed procedures necessitated by national
construction, such tax is exempted
5 Taxation administration
5.1 Taxation registration
5.2 Tax declaration
5.3 Tax collection
5.3.1 Prompt payment
Failure to pay tax within such period and the withholding
agent fails to transfer the tax within such period, the
taxation authorities can levy 0.5‰ delay charge per day on
the overdue payment starting from overdue date in addition
to ordering him to pay tax in a set period of time
5.3.2 Power of reasonable adjustment
(1) unnecessary to establish the account book according to laws
and administrative regulations
(2) fails to establish account book though required to do so by
laws and administrative regulations
(3) destroy account book by melting or burning, or refuse to
provide materials regarding taxation
(4) though account book has been established, accounts are
chaotic or the cost materials, income documents and expense
documents are incomplete rendering difficult to check the
accounts
(5) upon occurrence of taxation obligations, fails to declare the
tax in the period of time specified and after the taxation
authorities order him to do so in prescribed time, still fails to
do so after expiry of such time limit
(6) basis to calculate the taxable amount as declared is evidently
low without justified cause
5.3.3 Guarantee and enforcement
If there are obvious signs that taxpayer is moving away
and hiding its taxable goods, goods and other assets or
taxable incomes, they may order taxpayer to provide tax
payment guarantee.
If unable to provide such guarantee, they may:
(1) give a written notice to the its account bank or other
financial institutions requesting them to suspend
withdrawing the portion of its deposits equivalent in
value to the taxes
(2) detain and seal up the portion of goods and other
assets equivalent in value to the taxes
5.4 Tax inspection
(1) inspecting the taxpayer's account books, book-keeping
documents, statements and related materials, and inspection
of the withholding agent’s withholding and collecting
account books, book-keeping documents and related
materials
(2) visiting its production and operations sites and goods
storage sites for inspecting its taxable commodities, goods or
other assets and for inspecting the withholding agent's
business operations pertinent to withholding and collecting
taxes
(3) ordering it or withholding agent to supply documentation,
evidence and related materials in connection with tax payment
or tax withholding and collection
(4) inquiring it and withholding agent about the issues and
situations relating to tax payment or tax withholding and
collecting
(5) visiting stations, wharves, airports, postal and
telecommunications enterprises and their subsidiaries for
inspecting the relevant documentary certificates, documents and
related materials of the taxable commodities, goods or other
assets consigned and sent by the taxpayer
(6) checking its deposits accounts and that of withholding agent
at banks or other financial institutions upon approval by director
of tax bureau above county level and upon presentation of
certificate in nationwide uniform format permitting inspection of
deposits accounts
5.5 Legal responsibilities
5.5.1 Responsibilities for violating taxation
administration
Rectification within prescribed time, cancellation of business
license by AICs, and fine between RMB 2000-50000
(1) fails to make declaration and go through formalities for
tax registration, alteration or cancellation within the
specified time
(2) fails to establish and keep account books or accounting
documents and related materials according to provisions
(3) fails to submit the financial and accounting system or
methods to the taxation authorities for file
(4) fails to report all the bank accounts to the taxation
authorities
(5) fails to install and use the devices with tax control or destroy
or change such devices
(6) fails to use the taxation registration certificate, or lend,
tamper with, damage, transfer or forge such certificates
(7) withholding agent fails to establish and keep withholding
and collection account books or keep the accounting
documents and related materials in connection with tax
withholding and collection
(8) taxpayer fails to declare the tax within the specified time, or
withholding agent fails to submit tax withholding and
collecting reports to the taxation authorities within specified
5.5.2 Responsibilities for tax evasion and rebellion
against tax collection
Payment of evaded taxes and overdue charges, fine between
50% and 5 times of evaded taxes
Illustration: Enwei Group’s tax evasion
In 1990 Enwei Group established a JV entitled Chengdu Enwei Shiheng
Pharmaceuticals Company with the HK partner, i.e. HK Shiheng Trading Company.
Such JV terminated in 1994 with an actual 4 years operation, thus it should make up
the FIE income tax of RMB 44.693 million resulting from the FIE’s tax exemption and
reduction. In October 1993 Enwei Group entered into JV with another HK resident to
establish the Chengdu Enwei Pharmaceuticals Company. The HK venturer did not
make actual capital contribution, but the JV enjoyed a total amount of RMB 37.1223
million as the enterprise income tax preferences. In addition such company employed
blank receipts to withdraw fees and evaded an amount of tax RMB 2.2381 million in
the 1993 fiscal year. In 1994 and 1995 such company made no entry for part of the
exported products and evaded an amount of tax RMB 1.7126 million. In 1998 such
company forged accounts, hided part of the revenues and evaded an amount of tax
RMB 1.2672 million.
Illustration: Nangong city’s false VAT invoice
According to the investigation by the Henan provincial SAT which lasted for half a
year, as many as 49 enterprises issued VAT invoices fraudulently. For a period of two
years such enterprises fraudulently issued 17587 pieces of VAT invoices with a total
value of RMB 1065 million among which the value addition was RMB 916 million and
VAT tax was RMB 149 million. However such enterprise merely paid an amount of
VAT RMB 12.72 million, thus the State suffered a total loss of VAT RMB 137 million.
5.5.3 Responsibilities of taxation officer’s offences
(1) taxation officer conspires with the taxpayer and/or
withholding agent, instigates or assists it and/or withholding
agent in committing tax evasion
(2) tax officer takes advantage of the conveniences in his duties
and take or requests money and/or property from the
taxpayer or withholding agent
(3) tax officer neglects his duties thus collects none, or less than
the payable tax causing great losses to the State
(4) tax officer illegally begins, terminates, reduces, exempts or
rebates taxation or collects back tax
Administrative punishments: warning, fine and confiscation of
illegal incomes