China’s SAT Issues FAQs Relating to Tax Payments: Part V

Mar. 22 – China’s State Administration of Taxation (SAT) has recently issued a set of frequently asked questions relating to real estate tax and individual income tax (IIT). The answers provided are based on existing regulations. Detailed information can be found below.

Q: How should foreign-invested enterprises and foreign individuals pay real estate tax?

A: According to the “Notice on Issues Concerning the Collection of Real Estate Tax from Foreign-Invested Enterprises and Foreign Individuals,” starting from January 1, 2009, the collection of real estate tax from foreign-invested enterprises and foreign individuals shall be implemented pursuant to the “Interim Regulations of the People’s Republic of China on Real Estate Tax (guofa [1986] No.90).”

With respect to a foreign-invested enterprise or foreign individual that uses a currency other than RMB as its bookkeeping currency, such enterprises or individuals shall convert the tax payable calculated in the bookkeeping currency into RMB when paying the real estate tax.

The real estate tax thereof shall be collected by the relevant local taxation authorities of the place where the real estate is located.

Q: How do I calculate IIT for the lump-sum compensation received by a foreign individual for labor relationship termination?

A: According to the “Notice on Issues Concerning the Collection and Exemption of Individual Income Tax on the Lump-Sum Compensation Obtained by Individuals for Termination of Labor Relationships,” for the lump-sum compensatory income derived by individuals from the termination of labor relations with their employers (including economic compensation, living subsidies, and other subsidies), the portion of the income within three times the amount of the average wages of local employees in the preceding year shall be exempt from IIT.

Therefore, for the lump-sum compensatory income received by a foreign individual for labor relationship termination, the portion of the income within three times the amount of the average wages for local employees in the preceding year is exempt from IIT, while the exceeding portion shall be subject to IIT.

Q: For the bond interests received by a Hong Kong individual from a mainland Chinese enterprise, can such income be subject to the 7 percent IIT rate prescribed by the “Double Taxation Avoidance Agreement between the Mainland China and Hong Kong”?

A: According to the Individual Income Tax Law, for income derived from royalties, interest, dividends, bonuses, lease of property, transfer of property, incidental income or income from other sources, a flat rate, which is 20 percent, shall apply.

For taxpayers who want to enjoy the 7 percent IIT rate, they should apply to the competent tax authorities for the preferential tax treatment.

Q: Should the bonuses received by an employee be subject to IIT?

A: According to the principles set out in the Individual Income Tax Law, bonuses received by individuals, including those in the form of cash or physical objects, shall be subject to IIT.

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