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Regulations on the Personal Income Tax Assessment of Individual Businesses (Provisional)

Regulations on the Personal Income Tax Assessment of Individual Businesses (Provisional)

Write: Ileana [2011-05-20]
GSF [1997] No. 43
The Circular is omitted
Regulations on the Personal Income Tax Assessment of Individual Businesses Provisional
Article 1 The Regulations is formulated in accordance with the provisions of the country's tax laws and regulations in order to conduct audit-based tax assessment for individual businesses and strengthen administration over personal income tax collection.
Article 2 All the individual businesses subject to audit-based tax assessment shall calculate report and pay their personal income tax according to the provisions of the Regulations.
Article 3 The taxable income of an individual business refers to the balance resulting from the total income in the tax year minus the costs expenses and losses and constitutes the basis for personal income tax assessment. The calculating formula is
Taxable income = total income - costs expenses and losses
Payable personal income tax = taxable income X applicable tax rate
Article 4 The total income of an individual business refers to all the incomes received by the individual business from the production and operation and the activities related to production and operation. It includes the income from goods products sales income from operations income from labor service income from engineering prices income from property leasing or transfer interest income other business income and non-operational income.
Article 5 All the incomes of an individual business shall be determined on the accrual basis.
Article 6 The costs and expenses refer to all the direct expenditures incurred when an individual business engages in production and operation the indirect expenses proportionally charged to costs and the marketing management and financial expenses. The losses refer to all the non-operational expenditures incurred when the individual business engages in production and operation.
Article 7 The direct expenditures and the indirect expenses proportionally charged to costs refer to all the direct materials including raw materials auxiliary materials spare parts purchased semi-finished products fuels power and packing materials that are actually consumed by an individual business in the course of production and operation the incurred goods purchasing costs freights loading and unloading charges packing charges depreciation charges repair charges utility charges travel expenses leasing charges excluding financing leasing charges and inexpensive consumables the wages paid to those engaged in production and operation.
Article 8 The marketing expenses refer to all the expenses incurred to an individual business in the course of marketing products making semi-finished products and providing labor service including the freights loading and unloading charges packing charges consignment sale commissions advertising charges exhibition charges marketing service charges and other marketing expenses.
Article 9 The management expenses refer to all the expenses incurred when an individual business manages and organizes the activities of production and operation including the labor insurance premiums consulting fees legal fees audit fees land-use fees inexpensive consumable amortization intangible asset amortization syndication fees amortization uncollectible receivables bad-account losses business hospitality expenses tax payment and other management expenses.
Article 10 The financial expenses refer to the expenses incurred when an individual business raises funds for production and operation including the net interest expenditure net exchange loss financial institutions' commissions and other financial expenses in fund raising.
Article 11 The non-operational expenditures of an individual business include the net losses arising from the inventory loss write-off damage and sale of the fixed assets the losses arising from natural disasters and accidents the public-interest relief donations the compensation payments and the damages for breach of contract.
Article 12 The deductible items and standards for the above direct expenditures indirect expenses marketing expenses management expenses financial expenses and non-operational expenditures shall be determined in accordance with the provisions of the tax laws and regulations and the Regulations.
Article 13 The standards for the expense deductions for the individual business owners and the standards for the wage deductions for the employees shall be determined by the local tax bureaus of the provinces autonomous regions and municipalities directly under the central government and be reported to the State Administration of Taxation for the record.
The wages of the individual business owners are not deductible.
Article 14 The expenses of an individual business incurred from the date of applying for the business license till the date of beginning production and operation excluding the expenditures on the fixed assets and intangible assets and the exchange gains and losses and interest expenditures that shall be included into the values of assets can be regarded as the syndication expenses if they meet the provisions of the Regulations and can be deducted in equal installments within five years as from the date of beginning production and operation.
Article 15 The loan interest expenditures of an individual business in the course of production and operation can be deducted if they do not exceed the amounts calculated according to the interest rates for the loans of the same types and during the same periods set by the People's Bank of China.
Article 16 The expenditures of an individual business on the purchase of inexpensive consumables can in principle be amortized once for all. But if the value of a one-time purchase is fairly large it shall be amortized in installments. The value standard and duration for installment amortization are determined by the local tax bureaus of the provinces autonomous regions and municipalities directly under the central government.
Article 17 The expenditures of an individual business on the purchase of tax control cash registers shall be deducted in installments within two to five years. The specific duration is determined by the local tax bureaus of the provinces autonomous regions and municipalities directly under the central government.
Article 18 The incurred expenditures of an individual business on property insurance and transport insurance related to production and operation and on employee pension medical and other insurances are calculated and deducted according to the relevant standards set by the state.
Article 19 The repair expenses of an individual business that have incurred in relation to production and operation can be deducted according to the actual amounts. If the repair expenses incur unevenly or are fairly large in quantity they shall be deducted in installments. The standards and duration for installment deductions are determined by the local tax bureaus of the provinces autonomous regions and municipalities directly under the central government.
Article 20 The consumption tax business tax urban maintenance and construction tax resource tax land-use tax land value-added tax building tax vehicle and boat use tax stamp tax farmland occupation tax and educational surcharge paid by an individual business as required can be deducted.
Article 21 The business management fee the membership due of the individual workers' association and the stall fee paid by the individual businesses as required shall be deducted according to the accrued amounts. The items and standards for deducting other fees paid as required shall be determined by the local tax bureaus of the provinces autonomous regions and municipalities directly under the central government according to the local practical conditions.
Article 22 The charges paid by the individual businesses for leasing fixed assets in the course of production and operation shall be respectively handled according to the following provisions
1 The rentals arising from the leasing of fixed assets through financing leasing namely the leasor and the leasee agree in advance that after the leasee pays the final rental the fixed assets will be owned by the leasee shall be included into the values of the fixed assets and shall not be directly deducted.
2 The rentals arising from the leasing of fixed assets through operational leasing namely the fixed assets are leased temporarily to meet the needs of production and operation and will be returned to the leasor after the lease expires may be deducted according to the actual amounts.
Article 23 The R&D expenses of the individual businesses in the research and development of new products new technologies and new processes and the expenses arising from the purchase of test instruments and experimental devices that are purchased at a unit value of less than RMB 50 000 for the research and development of new products and new technologies may be deducted the test instruments and experimental devices with a unit value of over RMB 50 000 and other equipment whose expenses of purchase reach the standards for fixed assets shall be managed as fixed assets and shall not be deducted in the current period.
Article 24 The net losses of the individual businesses arising from the inventory loss and damage of the fixed assets and liquid assets in the course of production and operation may be deducted in the current period after the individual businesses provide the stock-taking data and receive the approval of the competent tax authorities.
Article 25 When the current foreign exchange accounts of the individual businesses change in the course of production and operation the difference arising from the exchange rate fluctuations when being converted into Renminbi shall be included into the current incomes or be deducted in the current period as the exchange gains or losses.
Article 26 If the interests paid by the individual businesses to acquire fixed assets occur before the assets are delivered for use they shall be included into the values of the purchased or constructed assets and shall not be deducted as the expenses.
Article 27 The uncollectible receivables of the individual businesses unrelated to production and operation including the receivables that remain uncollectible after compensations are made with bankrupt property or inheritance due to the bankruptcy or death of the debtors or the receivables that remain uncollectible after the debtors fail to repay the overdue debts for over three years shall be deducted according to the actual amounts after the individual businesses provide valid proofs and receive the approval of the competent tax authorities.
If the above deductible receivables are collected in the following years they shall be directly treated as the incomes.
Article 28 The annual operational losses of the individual business may be covered by the operational incomes of the following year after being approved by the competent tax authorities. If the incomes of the following year are insufficient to cover the losses they may continue to be covered annually in five years at most.
Article 29 The business hospitality expenses of the individual businesses related to production and operation shall be deducted according to the actual amounts within the 5 limit of their total incomes after they provide the legal vouches or invoices and receive the approval of the competent tax authorities.
Article 30 If the individual businesses donate their incomes to the educational and other social public-interest causes and to the areas hit by serious natural disasters or poverty through the social groups and state organs in China the donations may be deducted according to the actual amounts if they do not exceed the 30% of their taxable incomes. The donations directly made by the taxpayers to the beneficiaries shall not be deducted.
Article 31 With regard to the expenses of the individual businesses that occur in the course of production and operation and are mixed with family living expenses the expenses related to production and operation shall be calculated and deducted at the sharing ratio set by the competent tax authorities.
Article 32 The following expenditures of the individual businesses shall not be deducted
1 The capital expenditures including the expenditures on the purchase and construction of the fixed assets intangible assets and other assets and the expenditures on foreign investments
2 The confiscated properties and paid fines
3 The paid personal income tax the fixed assets investment direction regulatory tax and various overdue tax payments and fines
4 All sponsorship expenditures
5 The compensable portions of the losses arising from natural disasters or accidents
6 The dividends distributed to the investors
7 The personal and family expenditures
8 Other expenditures related to production and operation
9 Other expenditures that shall not be deducted according to the provisions of the State Administration of Taxation.
Article 33 The premises buildings machines equipment transport equipment and other equipment tools and instruments related to production and operation which have been used by the individual businesses for over one year in the course of production and operation and have a unit value of less than RMB 1 000 constitute the fixed assets.
Article 34 The prices of the fixed assets are calculated in the following methods
1 If the fixed assets are purchased their prices are calculated according to the actually paid prices packing charges freight and miscellaneous charges and installation charges
2 If the fixed assets are self-built their prices are calculated according to all actual expenses incurred during the course of building
3 If the fixed assets are investments in kind their prices are calculated according to the values confirmed by assessments or specified by contracts or agreements
4 If the fixed assets are renovated and expanded on the basis of the original fixed assets their prices are calculated by deducting the incomes from the price changes in the course of renovation and expansion from the original book values and by adding the expenditures increased for renovation and expansion
5 If the fixed assets are inventory profits their prices are calculated according to the full assessment values of the fixed assets of the same kind
6 If the fixed assets are leased through financing their prices are calculated by adding freight insurance installation and test charges to the rentals specified in lease agreements or contracts.
Article 35 The following fixed assets are entitled to depreciation allowances the premises and buildings the machinery equipment meters and instruments in use all types of tools and instruments the equipment seasonally unused or unused for repairs the fixed assets leased out through operation or leased in through financing.
The following fixed assets are not entitled to depreciation allowances the unused or unneeded fixed assets other than the premises and buildings the fixed assets leased in through operation the fixed assets whose depreciation allowances have been fully deducted and which are continued to be used.
Article 36 Before calculating the depreciation allowances of the fixed assets the residual values shall be estimated and be deducted from the original prices of the fixed assets. The residual values are equivalent to 5% of the original prices of the fixed assets.
Article 37 When the individual businesses deduct the depreciation allowances of the fixed assets according to the relevant provisions they may do so according to different conditions after they are approved by the competent tax authorities and if the depreciable life of their fixed assets is not shorter than the periods specified below
1 20 years for premises and buildings
2 10 years for ships machines machinery and other production equipment
3 5 years for electronic equipment transport equipment other than ships and instruments tools and furniture related to production and operation.
If the depreciable life of the fixed assets needs to be shortened for special reasons for example the machines and equipment are exposed to strong acid and alkaline corrosions the premises and buildings are simple or in a shaking or vibrant state all the year round or the fixed assets are noted for fast technological upgrading the individual businesses may submit their applications to the provincial tax authorities and make deductions after being examined and approved.
Article 38 The depreciation allowances of the fixed assets are calculated and deducted according to the average life method and the workload method.
The method to calculate the depreciation allowances of the fixed assets according to the average life method is
Annual depreciation rate of fixed assets = 1 - 5% residual value rate / depreciable life x 100%
Monthly depreciation rate = annual depreciation rate 12
Monthly depreciation = original price of fixed assets x monthly depreciation rate
The method to calculate the depreciation allowances of the fixed assets according to the workload method is
Unit mileage per working hour depreciation = original price - residual value / total mileage total working hours
Article 39 The materials stocked for selling or use by the individual businesses in the course of production and operation constitute the inventory. They include various kinds of raw materials auxiliary materials fuels inexpensive consumables packing materials products in production purchased goods self-made semi-finished products and finished products. The price of the inventory is calculated according to the actual cost. The inventory already used or issued shall in principle be calculated according to the weighted average method.
Article 40 The assets that are long used by the individual businesses in the course of production and operation but have no physical forms constitute the intangible assets. They include the patent rights non-patented technologies trademarks business reputations copyrights and site-use rights. The prices of the intangible assets shall be calculated according to the actual acquisition costs. Specifically
1 If the intangible assets are used for investments the reasonable prices specified in agreements or contracts constitute their original prices
2 If the intangible assets are purchased the actual paid prices constitute their original prices
3 If the intangible assets are donated their original prices are set according to the attached invoices or the market prices of the same kind of intangible assets
The prices of the non-patented technologies and business reputations shall be assessed and confirmed by the statutory assessment institutions.
Article 41 The intangible assets shall be equally deducted within the valid period of use from the day when they begin to be used.
The intangible assets serve as investment or acquisition may be deducted in installments according to the service life if the service life is specified in the laws contracts or agreements such intangible assets shall be deducted over a period of no less than 10 years if they have no specified service life or if they are self-developed.
Article 42 The Regulations shall be interpreted by the State Administration of Taxation. The local tax bureaus of the provinces autonomous regions and municipalities directly under the central government may formulate their specific implementing rules in accordance with the principles specified in the Regulations and in light of the local conditions.
Article 43 The Regulations enters into force on January 1 1997.