Laws of the People's Republic of China

the Ministry of Finance, the State Administration of Taxation

Circular of the Ministry of Finance and the State Administration of Taxation on the Relevant Policies Concerning the Standards for the Deduction of Fees from the Income from Wages and Salaries Subject to Individual Income Tax

Cai Shui [2005] No. 183

The public finance departments (bureaus) and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government, and cities as specifically designated in the state plan, and the Financial Bureau of Xinjiang Production and Construction Corps.:

According to the Amendment to the Individual Income Tax Law of the People's Republic of China which was adopted upon deliberation at the 18th meeting of the Standing Committee of the Tenth National People's Congress, the issue concerning the standards for the deduction of fees from the incomes from wages and incomes subject to individual income tax is hereby notified as follows:

I.

According to the relevant provisions of the newly amended Individual Income Tax, as to the income from wages and salaries, a taxpayer shall calculate and pay individual income tax after the monthly standard deduction of RMB 1600 Yuan from such income that he actually derives since January 1, 2006.

II.

The income from wages and salaries shall, according to the unified provisions in the tax laws of the state, be strictly governed by the policies on "wages, salaries, bonuses, year-end bonuses, dividends, allowances and subsidies, and other incomes related to employment or appointment. Except for the projects for which the taxes can be reduced and exempted under the unified provisions of the state, all the incomes falling within the scope of wages and salaries shall be taxed according to the relevant provisions.

III.

After the standard deduction of fees from the income from wages and salaries is raised, all the regions shall implement the uniform standard, and no region may illegally prescribe tax-free projects or raises the standard for the deduction of fees in any disguised form. As to a region that illegally raises the standard for the deduction of fees, the amount of public finance transfer payment shall be reduced correspondingly or the base of local individual income tax shall be decreased. The tax authority may not implement the deduction standard of fees that a region has illegally raised, and shall report it to the tax authority at the next higher level.

Please implement the Circular accordingly.

Ministry of Finance

State Administration of Taxation

December 19, 2005