Member Article

At the 18th Session of the Standing Committee of the 10th National People’s Congress held on 27 October 2005 amendments were adopted to the Individual Income Tax Law of the People's Republic of China. The amendments were promulgated by President Hu Jintao on 27 October 2005 and enter into effect on 1 January 2006. Tax free allowance A first amendment raises the tax free allowance applicable to wages and salaries from RMB 800 to RMB 1,600. Income earners shall only be taxed on the amount of personal income from wages and salaries which exceeds the allowance. Withholding obligation Under the Law, the employer is the withholding agent for the individual income tax of its employees. The employer is consequently required to withhold the tax from the salary of all of its employees and then file a tax return and pay tax to the tax authority. A second amendment clarifies the position of certain taxpayers, including taxpayers who derive income from wages and salaries from two or more locations or do not have a withholding agent for whom this withholding arrangement may not be possible. Such taxpayers are required to file tax returns and pay taxes themselves in accordance with state regulations.