On 15 April the State Administration of Taxation published the Taking Concrete Steps to Strengthen the Collection and Administration of Individual Income Taxes on High-income Earners Notice (Guo Shui Fa [2011] No. 50).
This is seen as another new initiative by the State Administration of Taxation following the implementation of the Further Strengthening the Collection and Administration of Individual Income Taxes on High-income Earners Notice (Guo Shui Fa [2010] No. 54) in May last year.
Income from sale of property
The latest notice calls for increased regulation of proceeds from the sale of housing and other property by high-income earners:
- individual income tax on proceeds from transfers of shares by natural person shareholders, revenue derived from the acquisition of equity interests by individuals in foreign investment, and the transfer by individuals of the shares of listed companies with selling restrictions are all included within the scope of tax collection and administration;
- as to proceeds from the sale of real property, the notice emphasizes that the tax authorities must liaise and cooperate with relevant departments in enforcing stringent taxation measures; and
- with respect to proceeds from the sale of other forms of property, the notice calls for the strengthening of the management of revenue derived from the acquisition of equity interests by individuals in foreign investments using non-monetary assets at assessed values.
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Dividend and bonus income
With respect to the taxation of income from dividends and bonuses, if investors and their family members spend and borrow from the chargeable expenses of a corporate enterprise, the tax authorities will carry out daily administration and inspection of the sources of revenue and levy a tax on their relevant income according to law:
- if a large amount of money is involved, the tax authorities will take steps to verify whether the expenses claims submitted are true and lawful; and
- for enterprises which are generally profitable but do not pay dividends or bonuses, or which pay corporate income tax, the tax department will focus on tracking the dividends and bonuses of their individual investors and will devise relevant measures for the levy and administration of tax.
Production and operations income
As to income from production and operations, the notice calls for tightening the management of the auditing of accounts and the levy of tax on income from production and operations by major sole proprietorships, partnerships and privately or individually owned businesses:
- it is expressly provided in the notice that those working in law firms, accounting firms, tax offices, asset and real estate appraisal firms and other professional services firms are no longer eligible to have individual income tax levied on a deemed basis;
- income derived by sole proprietorships and partnerships from trading in shares, futures, funds, bonds, foreign exchange, precious metals, resource exploitation rights and other investment products will all be included as income from production and operations, and subject to individual income tax according to law; and
- the tax authorities will focus on the administration of the sources of revenue of high-income groups that hold a large amount of equity interests in companies, derive a large amount of investment income and invest in real property, mineral resources, private equity, and trust and investment activities.
Salaries and other rewards
- Special attention will be paid to income from bonuses, subsidies and equity incentives which are gained by middle and senior management staff in high-income industries and enterprises, and the collection and administration of taxes on such income will be stepped up;
- the tax authorities will, in strict compliance with the rules for tax collection and administration, impose penalties for the evasion of individual income tax by means of expenses claims;
- for taxpayers who receive wage and salary income from two or more sources, the tax authorities will compare information contained in the individual’s tax return with other available information in order to tighten the administration of self-declaration by taxpayers; and
- the collection and administration of taxes on large remuneration payments will be improved. The collection and administration of income tax on revenues received by individuals engaged in film and television performances, advertising photography and product endorsement, through artists’ studios, service companies and businesses or organizations of other forms, will be strengthened.
The notice also calls for strengthening the collection and administration of tax on the revenues of high-income individual foreigners sourced from inside and outside China.
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Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at baochen@haiwen-law.com. Readers should not act on this information without seeking professional legal advice.
