LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON INDIVIDUAL INCOME TAX (REVISED IN 2005)

The Decision of the Standing Committee of the National People's Congress of the People's Republic of China on Amending the Law of the People's Republic of China on Individual Income Tax, which were adopted at the 18th session of the Standing Committee of the Tenth National People's Congress of the People's Republic of China on October 27, 2005, is promulgated hereby and shall come into force as of January 1, 2006.

Law of the People's Republic of China on Individual Income Tax (Revised in 2005)

(Adopted at the Third Session of the Fifth National People's Congress on September 10, 1980; amended for the first time in light of the Decision of the Fourth Session of the Standing Committee of the Eighth National People's Congress on Amending to the Law of the People's Republic of China on Individual Income Tax on October 31, 1993; and amended for the second time in light of the Decision of the 11th Session of the Standing Committee of the Ninth National People's Congress On Amending to the Law of the People's Republic of China on Individual Income Tax on August 30, 1999; amended for the third time in light of the Decision of the 18th Session of the Standing Committee of the Tenth National People's Congress on Amending the Law of the People's Republic of China on Individual Income Tax on October 27, 2005.)

An individual, who has a domicile within the territory of China or who has no domicile but has stayed within the territory of China for one year or more, shall pay individual income tax for his income obtained in and/or outside the territory of China according to the provisions of this Law.

An individual, who has no domicile and does not stay within the territory of China or who has no domicile but has stayed within the territory of China for less than one year, shall pay individual income tax for his income obtained within the territory of China according to the provisions of this Law.

Individual income as listed below shall be subject to payment of individual income tax:

income of private industrial and commercial households from their production and business operation;

other incomes specified as taxable by the financial department of the State Council.

For the income of wages and salaries, the progressive tax rate in excess of the specific amount is applicable and the rate ranges from 5 percent to 45 percent (the tax rate schedule is attached behind).

For the income of private industrial and commercial households from their production and business operation and income of enterprises and institutions from contracting or leasing, the progressive tax rate in excess of the specific amount ranging from 5 percent to 35per cent is applied (the tax rate schedule is attached behind).

For the income from remuneration for manuscripts, the flat tax rate is applicable and the tax rate is 20 percent, and a 30 percent tax deduction shall be applied to the amount of tax payable.

For the income from remuneration for labor services, the flat tax rate is applicable and the tax rate is 20 percent. If a single payment of remuneration for labor service is excessively high, an additional proportion of tax may be levied thereon, and the concrete measures shall be formulated by the State Council.

For the income from royalties, income from interests, dividends and bonuses, income from the lease of properties, income from the transfer of properties, occasional income and other incomes, the flat tax rate is applicable and the tax rate is 20 percent.

Individual incomes as listed below shall be exempted from individual income tax:

prizes in science, education, technology, culture, health, sports and environmental protection, which are awarded by provincial people's governments, ministries and commissions under the State Council and units of the People's Liberation Army at or above the army level, as well as by foreign organizations and international organizations;

subsidies and allowances distributed pursuant to the unified provisions of the State;

settling-in allowance, severance pay, retirement wages, retirement wages for veteran cadres, and living allowances and subsidies for retired veteran cadres, which are distributed to cadres and workers according to the unified provisions of the State;

income of diplomatic representatives, consular officers and other personnel of foreign embassies and consulates in China, which shall be exempt from tax according to the relevant laws of China;

income which shall be exempt from tax in light of the international conventions to which the Chinese Government is a member or agreements which the Chinese Government has signed; and

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

Upon approval, individual income tax may be reduced under any of the following circumstances:

For the income of wages and salaries, the taxable income amount shall be the balance after deducting 1600 Yuan from the monthly income.

For the income of private industrial and commercial households from their production and business operation, the taxable income amount shall be the balance after deducting costs, expenses and losses from the gross incomes in a tax year.

For the income of enterprises and institutions from contracting or leasing, the taxable income amount shall be the balance after deducting necessary expenses from the gross income in a tax year.

For the income from remuneration for labor services, the income from remuneration for manuscripts, the income from royalties and the income from the lease of properties, the taxable income amount shall be the balance after deducting 800 Yuan if a single payment does not exceed 4,000 Yuan, and be the balance after deducting 20 percent of expenses if a single payment exceeds 4,000 Yuan.

For the income from the transfer of properties, the taxable income amount shall be the balance after deducting the original value of the properties and reasonable expenses from proceeds of the transfer of the properties.

For the income of interests, dividends and bonuses, occasional income and other incomes, the taxable income amount shall be the amount of income received each time.

The part of income donated by individuals for education and other public welfare careers shall be deducted from the taxable income amount according to the relevant regulations of the State Council. For a taxpayer who has no domicile within the territory of China but has obtained wage and salary income within the territory of China, or a taxpayer who has a domicile within the territory of China but has obtained wage and salary income abroad, an additional deduction for expenses may be determined in light of his average income level, living standards and the change of exchange rates. And the scope and standards for the additional deduction for expenses shall be formulated by the State Council.

For a taxpayer who has obtained incomes outside the territory of China, the amount of individual income tax already paid outside China may be deducted from the payable tax amount. Nevertheless, the deducted amount may not exceed the payable tax amount for the taxpayer's incomes from abroad as calculated according to the provisions of this Law.

The income earner shall be the taxpayer of individual income tax, and the unit or person that effects the payment shall be the withholding agent. Where the individual income exceeds the amount as prescribed by the State Council, or a taxpayer gains wage or salary incomes from two or more places or has no withholding agent, or there is any other circumstance as prescribed by the State Council, the taxpayer shall, according to the provisions of the state, handle the tax payment declaration. A withholding agent shall, according to the provisions of the state, make the withholding declaration for all the taxpayers and in full amount.

Within the first seven days of the following month, all tax amounts withheld each month by the withholding agents and all tax amounts paid each month by the taxpayers who file tax returns on their own initiatives shall be turned into the State treasury, and tax returns shall be submitted to the tax authorities.

For the income of wages and salaries, the payable tax amount shall be calculated and collected on a monthly basis, and the withholding agents or taxpayers shall, within the first seven days of the following month, turn them into the State treasury and submit tax returns to the tax authorities. For the income of wages and salaries in some specific industries, the payable tax amount may be calculated on a yearly basis and be prepaid on a monthly basis, and the concrete measures shall be formulated by the State Council.

For the income of private industrial and commercial households from their production and business operation, the payable tax amount shall be calculated on a yearly basis and be prepaid on a monthly basis. The taxpayers shall make such prepayment within the first seven days of the following month and shall settle it within three months following the end of a year. And the amount in excess shall be refunded and any amount in deficiency shall be supplemented. For the income of enterprises and institutions from contracting or leasing, the payable tax amount shall be calculated on a yearly basis, and the taxpayers shall, within 30 days following the end of a year, turn them into the State treasury and submit tax returns to the tax authorities. Where a taxpayer receives incomes in installments within a year from contracting or leasing operation, prepayment shall be made within the first seven days following the receipt of each installment of income, and the payable tax amount shall be settled within three months following the end of a year. And the amount in excess shall be refunded and any amount in deficiency shall be supplemented. A taxpayer who gains income outside China shall, within 30 days following the end of a year, turn the payable tax amount into the State treasury and submit the tax return to the tax authority.

Renminbi shall be the unit for calculation of all types of incomes. If incomes are in foreign currencies, they shall be converted into Renminbi pursuant to the foreign exchange rates provided for by the State Administration of Foreign Exchanges for tax payment.

The handling charge equivalent to 2 percent of the tax amount withheld shall be paid to the withholding agent.

The commencement date for collecting individual income tax on proceeds from interests on savings and deposits, and the collection method shall be provided for by the State Council.

The administration on the collection of individual income tax shall be subject to the provisions of the Law of the People's Republic of China on the Administration of Tax Collection.

The State Council shall, according to the provisions of this Law, formulate the regulations for its implementation.

Grade	Monthly Taxable Income	Tax Rate( %)
1	Income of 500 yuan or less	5
2	that part of income in excess of 500 to 2,000 yuan	10
3	that part of income in excess of 2,000 to 5,000 yuan	15
4	that part of income in excess of 5,000 to 20,000 yuan	20
5	that part of income in excess of 20,000 to 40,000 yuan	25
6	that part of income in excess of 40,000 to 60,000 yuan	30
7	that part of income in excess of 60,000 to 80,000 yuan	35
8	that part of income in excess of 80,000 to 100,000 yuan	40
9	that part of income in excess of 100,000 yuan	45

ĄĄĄĄ(Applicable to income gained by self-employed industrial and commercial households from their production or business operation and income gained by enterprises and institutions from contracting or leasing operation)

Grade	Monthly Taxable Income	Tax Rate( %)
1	income of 5,000 yuan or less	5
2	that part of income in excess of 5,000 to 10,000 yuan	10
3	that part of income in excess of 10,000 to 30,000 yuan	20
4	that part of income in excess of 30,000 to 50,000 yuan	30
5	that part of income in excess of 50,000 yuan	35

Laws of the People's Republic of China

LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON INDIVIDUAL INCOME TAX (REVISED IN 2005)