FAQHigh-frequency Confusing Issues on Individual Income Tax in China
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How to pay individual income tax for temporary workers? |
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If there is employment relationship between the enterprise and temporary workers, individual income tax will be withhold by the enterprise based on calculation method of salary income; On the contrary, if there is no employment relationship, the individual income tax will be withhold based on calculation method of remuneration.
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How to pay individual income tax if enterprises present gifts to individuals other than its own employees? |
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According to Notice on Application for individual Income Tax Items issued by Finance Ministry and State Administration of Taxation, from 1 January 2019, individual’s income derived from gifts (including electronic red packet) that presented by enterprises in business publicity, advertising and other activities or gifts presented by enterprises in year-end party, forum, celebration and other activities need to pay individual income tax as “incidental income”. However, the discount consumption vouchers, coupons are excluded.
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What is the taxation basis for sole proprietorship business and partnership business? |
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According to Notice on Regulations on Individual Income Tax for Sole Proprietorship and Partnership Business issued by Finance Ministry and State Administration of Taxation in 2000, the taxable income for sole proprietorship investor is the total operation income; the taxable income for partnership business investors is total operating income based on the agreed profit distribution ratio in the partnership agreement. In absence of stipulations for such proportion in the partnership agreement or the proportion is unclear, partners may negotiate the proportion; if the negotiation is failed, the taxable income will be distributed based on the actual investment amount; If the investment ratio is unidentified, each partner shall share profits and losses equally.
The above mentioned “operating income” include income distributed to individual investors and retained by the enterprise for the current year. |
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Does it need to pay individual income tax for free transfer of equity between relatives? |
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It depends. According to Notice on Trial Management Measures on Equity Transfer issued by Finance Ministry and State Administration of Taxation in 2014, individual income tax shall be exempted if following conditions are met in free equity transfer:
Inheritance or transfer of equity to whom can provide proof of legal relationship like spouse, parents, children, grandparents, grandchildren, brothers & sisters, dependant that bears the obligation of bringing up or maintaining the assignor directly. Except for above equity transfer between the relatives, tax authorities shall verify the transfer income if the tax declaration amount is obvious low with no good reason. |
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What are the verification methods of equity transfer for tax authorities? |
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According to Notice on Trial Management Measures on Equity Transfer issued by Finance Ministry and State Administration of Taxation in 2014, the tax authorities shall verify the equity transfer income according to below methods in turn:
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Does it need to pay individual income tax for complimentary insurance by insurance company for brand promotion? |
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According to Notice on Application for individual Income Tax Items issued by Finance Ministry and State Administration of Taxation in 2019, individual’s income derived from gifts (including electronic red packet) presented by enterprises in business publicity, advertising and other activities or gifts presented by enterprises in year-end party, forum, celebration and other activities need to pay individual income tax based on incidental income tax item. Therefore, individual income tax should be paid as “incidental income” if individuals get complimentary insurance from an insurance company. |
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