I.        Taxpayers

Taxpayers are classified into two categories: resident individuals and non-resident individuals. The criteria are as follows:

1.  Resident Individuals: individuals who are domiciled or not domiciled in China and have resided in China for 183 days or more in a tax year. Individual income tax shall be paid on the income of wages and salaries obtained within or outside the territory of China.

2.  Non-resident individuals: an individual who is not domiciled and does not reside in China, or who is not domiciled and has resided in China for a cumulative period of less than 183 days in a tax year shall be considered as a non-resident individual. Non-resident individuals shall pay individual income tax according to tax law on their income of wages and salaries obtained within the territory of China.

II.       Taxable items and calculation of Individual Income Tax payable

1.       Comprehensive Income for Resident Individuals

The comprehensive income for resident individuals includes wages and salaries, remuneration for personal service, author’s remuneration and royalties.

a.       Wages and Salaries for Resident Individuals

The individual income tax shall be calculated on the annual basis for the income from wages and salaries obtained by resident individuals. When the withholding agent pays the comprehensive income from wages and salaries to resident individuals, the withholding tax shall be calculated according to the cumulative withholding method and the individual income tax shall be withheld on a monthly basis.

Under the cumulative withholding method, the taxable income shall be calculated by the total accumulative income the taxpayers obtained from the current company minus the total accumulative deduction amount minus the total accumulative special deduction, special additional deduction and other deductions determined by law. The withholding individual income tax by tax agents shall be calculated and paid by applicable tax rate according to Table One as below.  The withholding tax for current month shall be calculated by the total tax payable minus the accumulative tax paid.  

Table One: Withholding Tax Rate of Wages and Salaries for Resident Individuals

Grade	Annual Taxable Income (RMB)	Withholding  Rate %	Quick     Deduction
1	Less than 36,000	3	0
2	More than 36,000 and less than 144,00	10	2,520
3	More than 144,000 and less than 300,000	20	16,920
4	More than 300,000 and less than 420,000	25	31,920
5	More than 420,000and less than 660,000	30	52,920
6	More than 660,000 less than 960,000	35	85,920
7	Over 960,000	45	181,920

The formula is:

Withholding Tax for Current Month = (Accumulated Withholding and Prepaid Taxable Income x Withholding Rate – Quick Deduction) - Accumulated Deductions –  Accumulated Tax Withhold

(Accumulated Withholding and Prepaid Taxable Income = Accumulated Income - Accumulated Tax-exempt income - Accumulated Deductions - Accumulated Special Deductions - Accumulated Special Additional Deductions - Accumulated Other Deductions Determined by Law

b.        Remuneration of Personal Service of Resident Individuals

The income of remuneration for personal service is taxed monthly on the basis of remaining sum of the income after deduction of 800 yuan when each payment of the income is not over 4,000 yuan or on the basis of the remaining sum of the income after deduction of 20% of the income as the expenses when each payment of the income is over 4,000 yuan. The applicable withholding tax rate is from 20% to 40% (refers to below Table Two).

Table Two: Withholding Tax Rate for Remuneration of Personal Services for Resident Individuals

Grade	Taxable Income (RMB)	Withholding Rate %	Quick       Deduction
1	Less than 20,000	20	0
2	More than 20,000 and less than 50,000	30	2,000
3	Over 50,000	40	7,000

The formula is:

Tax Withholding on Income from Remuneration for Labor Service = Taxable Income x Withholding Rate - Quick Deduction

c.        Income from Author’s Remuneration and Royalties

Income from author's remuneration and royalties of resident individuals shall be withheld and paid in advance on monthly basis.

The formula is:

Tax Withholding on Income from Author's Remuneration and Royalties = Taxable Income x20%

2.        Income for Non-resident Individuals

The withholding agents shall withhold and pay individual income tax on a monthly or time base when the withholding agents pay income of wages and salaries, remuneration for personal services, author's remuneration and royalties to non-resident individuals according to below method:

For income from wages and salaries received by non-resident individuals, the taxable income shall be the amount after deduct RMB 5,000 from monthly income; for income from remuneration for personal services, author's remuneration and royalties, the amount of tax payable shall be calculated on the basis of the monthly converted tax rate table for non-resident individuals (refers to table 3). The taxable amount of remuneration for personal services, author's remuneration and royalties is the amount after deducting 20% of the expenses. The income from author's remuneration shall be reduced by 70%.

Table Three：Tax Rate of Salaries and Wages, Remuneration of Personal Services, Author’s Remuneration and Royalties for Non-resident Individuals

Grade	Annual Taxable Income(RMB)	Tax Rate (%)	Quick Deduction
1	Less than 3,000	3	0
2	More than 3,000 and less than 12,000	10	210
3	More than 12,000 and less than 25,000	20	1,410
4	More than 25,000 and less than 35,000	25	2,660
5	More than 35,000 and less than 55,000	30	4,410
6	More than 55,000 and less than 80,000	35	7,160
7	Over 80,000	45	15,160

The formula is:

Tax on Income from Salaries and Wages, Remuneration of Personal Services, Author’s Remuneration and Royalties for Non-resident Individuals = Taxable income x Applicable tax rate - Quick deduction

3.       Operating Income of Individual Industrial and Commercial Households

For operating income, the taxable income shall be the balance of the total income of each tax year after deducting costs, expenses and losses. operating income refers to:

a.  the income from production and operation activities of individual industrial and commercial households, and the income from production and operation of the sole proprietorship enterprise investor or partnership enterprise derived from the domestic registered sole proprietorship enterprise or partnership enterprise;

b.  income derived by individuals from engaging in school-running, medical treatment, consulting and other paid service activities in accordance with the law;

c.  income derived by individuals from contract operation, leasing, subcontracting and subleasing operations to enterprises；

d.  income derived by individuals from other production and operation activities.

If an individual has determined operating income but does not have comprehensive income, 60,000 yuan of expenses, special deductions, special additional deductions and other deductions determined in accordance with the law shall be deducted when calculating his taxable income amount in each tax year. Special additional deduction shall be deducted in the final settlement of the individual income tax.

In case of failure to provide complete and accurate tax information and failure to correctly calculate the taxable amount while engaging in production or operation, the amount of taxable income or the amount of tax payable shall be determined by the competent tax authorities.

Table Four：Tax Rate of Operating Income

Grade	Annual Taxable Income (RMB)	Tax Rate (%)	Quick Deduction
1	Less than 30,000	5	0
2	More than 30,000 and less than 90,000	10	1,500
3	More than 90,000 and less than 300,000	20	10,500
4	More than 300,000 and less than 500,000	30	40,500
5	Over 500,000	35	65,500

4.        Income from Leasing

If the income from the lease of property does not exceed 4,000 yuan each time, 800 yuan shall be deducted from the expenses; for 4,000 yuan or more, 20% of the expenses shall be deducted, and the remaining balance shall be taxable income. Applicable tax rate is 20%. Income from individuals housing rental is subject to a 10% tax rate.

The formula is:

Tax on Income from Leasing = Taxable Income x Applicable Tax Rate

5.        Income from Transfer of Property

The taxable income for transfer of property shall be the balance of the income from the transfer of property deducting the original value of the property and reasonable expenses. Applicable tax rate is 20%.

The formula is:

Tax on Income from Transfer of Property = (Income from the Transfer of Property – Original Value of Property – Reasonable Expenses) x 20%

6.       Income from interest, dividends, bonuses and contingent income

For income from interest, dividends, bonuses and contingent income, the amount of each income shall be the taxable income.

The formula is:

Tax on income from interest, dividends, bonuses and contingent income = Taxable Income x 20%

The following income are exempt from individual income tax:

1. Awards for achievement 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, China’s People’s Liberation Army Units at army level and above and by foreign and international organizations;

2. Interest income on National Bonds issued by the Ministry of Finance and interest income on financial bonds issued upon approval by the State Council;

3. Interest income on saving deposits;

4. Special governmental allowances provided in accordance with the uniform regulations of the State Council and the subsidies and allowances stipulated as being exempt by the State Council;

5. Welfare benefits, survivor’s pensions and relief payments;

6. Insurance indemnities;

7. Military severance payment and demobilization payment received by members of the armed forces;

8. Settlement payment, severance payment and retirement payment received by public servants and workers under the uniform provisions of the State;

9. Income derived by diplomatic agents and consular officers and other personnel who are exempt from tax under the provisions of the relevant Laws of the People’s Republic of China;

10.Income exempt from tax as stipulated in the international conventions to which Chinese Government is a party and in the agreements it has entered into