Circular of the State Administration of Taxation on the Issuance concerning the Measures for the Calculation of Individual Income Tax on Individual Industrial and Commercial Entities (Trial Implementation)
Circular of the State Administration of Taxation on the Issuance concerning the Measures for the Calculation of Individual Income Tax on Individual Industrial and Commercial Entities (Trial Implementation)
Circular of the State Administration of Taxation on the Issuance concerning the Measures for the Calculation of Individual Income Tax on Individual Industrial and Commercial Entities (Trial Implementation)
Guo Shui Fa [1997] No.43
March 26, 1997
Measures for the Calculation of Individual Income Tax on Individual Industrial and Commercial Entities (Trial Implementation)
Article 1 In order to adapt to the need to subject individual industrial and commercial entities (hereinafter referred to as individual businesses) to the practice of taxation based on account examinations and strengthen the administration of individual income tax collection, these Measures have been formulated in accordance with the provisions of tax laws and regulations.
Article 2 Any individual business subject to taxation based on account examinations shall calculate, declare and pay individual income tax in accordance with the provisions set out in these Measures.
Article 3 The taxable income of an individual business shall be its total income for a taxable year minus its costs, expenses and losses, and the amount of individual income tax payable shall be calculated accordingly.
The respective formulas are as follows:
Taxable income = total income – costs, expenses and losses
Individual income tax payable = taxable income x applicable tax rate
Article 4 The term "the total income of an individual business" as used herein refers to all income obtained by an individual business from its production and operating activities and activities related to its production and operation, including income from the sale of goods (products), operating income, labor service income, project fee income, income derived from the lease or transfer of property, interest income, and any other business or operating income.
Article 5 All income obtained by an individual business shall be determined on an accrual basis.
Article 6 The term "cost and expenses" as used herein refers to all direct expenditure and indirect expenses allocated for inclusion in costs incurred by an individual business as a result of its production and operating activities and its sales, management and financial expenses; the term "losses" as used herein refers to all non-operating expenditure incurred by an individual business in the course of its production and operating activities.
Article 7 The term "direct expenditure and indirect expenses allocated for inclusion in costs" as used herein refers to direct materials actually consumed by an individual business in the course of its production and operating activities, such as all types of raw materials, auxiliary materials, spare parts and fittings, semi-finished products purchased from third parties, fuel, power and packaging materials, in addition to goods purchasing costs, freight charges, handling charges, packing expenses, depreciation charges, repair expenses, utility expenses, travel expenses, lease expenses (not including financing lease expenses), low-value consumables, etc., which are incurred by the individual business, and salaries paid to its employees engaged in production and operating activities.
Article 8 The term "sales expenses" as used herein refers to all expenses incurred by an individual business in the course of selling products or self-produced semi-finished products or providing labor services, including transport expenses, handling charges, packing expenses, consignment commission charges, advertising expenses, exhibition expenses, sales service expenses and other sales expenses.
Article 9 The term "management expenses" as used herein refers to all expenses incurred by an individual business in managing and making arrangements for its production and operating activities, including labor insurance expenses, advisory expenses, litigation costs, audit fees, land use fees, the amortization of low-value consumables, the amortization of intangible assets, the amortization of organizational expenses, non-recoverable debts (losses on bad debts), entertainment expenses, tax paid and other management expenses.
Article 10 The term "financial expenses" as used herein refers to all expenses incurred by an individual business in raising production and operating funds, including net interest expenses, net exchange losses, service fees charged by financial institutions and other financial expenses incurred in the course of the fund-raising process.
Article 11 Non-operating expenses incurred by an individual business include net losses arising from fixed asset inventory shortages, retirements, damage and sales, losses incurred as a result of natural disasters or accidents, charitable donations, damages, liquidated damages, etc.
Article 12 Items for which and the rates at which all direct expenditure, indirect expenses, sales expenses, management expenses, financial expenses and non-operating expenses as described above may be deducted shall be determined in accordance with the provisions of tax laws and regulations and these Measures.
Article 13 The rates at which expenses incurred by individual business owners are deducted and the rates at which the salaries of their employees are deducted shall be determined by the local taxation bureaus of all provinces, autonomous regions and municipalities directly under the Central Government in light of their local circumstances and shall be reported to the State Administration of Taxation for the record.
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