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	NOTICE OF THE STATE ADMINISTRATION OF TAXATION ON ADJUSTING THE METHOD OF CALCULATING AND LEVYING INDIVIDUAL INCOME TAXES ON ANNUAL ONE-OFF BONUSES, ETC. OBTAINED BY INDIVIDUALS

	(No. 9 [2005] Promulgated by the Sate Administration of Taxation)


SUBJECT : TAXATION; INCOME TAX; BONUSES
ISSUING DEPARTMENT : STATE ADMINISTRATION OF TAXATION
ISSUE DATE : 01/21/2005
IMPLEMENT DATE : 01/01/2005
LENGTH : 809 words
TEXT :

The administrations of local taxes of all provinces, autonomous regions, municipalities directly under the Central Government, and municipalities directly under the State planning, all entities subordinate to the State Taxation Administration:

In order to reasonably resolve the problem of levying taxes on individuals who obtain annual one-off bonuses, we hereby, after research, give our notice on adjusting relevant methods for levying individual income taxes as follows:

I. Annual one-off bonuses shall mean the one-off bonuses distributed by administrative organs, enterprises, public institutions and other withholding agents to employees on the basis of the economic benefits of the whole year and the comprehensive assessments on the employees¡¯ work performance during the whole year.

The above-mentioned one-off bonuses also include year-end pay rises, as well as annual salaries and performance-related wages distributed upon the assessment of entities that apply the annual salary system or the method of performance-related wages.

II. The annual one-off bonuses obtained by a taxpayer shall be solely considered as the income from his one month¡¯s wages and salaries for calculation of tax payable. The said tax shall be withheld at the time of distribution by the withholding agent according to the following methods of calculating tax:

(1) Dividing the annual one-off bonuses obtained by the employee in the very month by 12 months, and determining the applicable tax rate and the sum of quick calculation deduction according to the quotient.

If, in the month when the year-end one-off bonuses are distributed, an employee¡¯s income from wages and salaries obtained in the very month is lower than the amount for expense deduction as prescribed in tax laws, the balance after deducting ¡°the margin between the employee¡¯s income from wages and salaries obtained in the very month and the amount for expense deduction¡± from the annual one-off bonuses shall be used to determine the tax rate applicable to the annual one-off bonuses and the quick calculation deduction according to the above mentioned method.

(2) Calculating the tax payable on each individual employee¡¯s annual one-off bonuses obtained in the very month according to the applicable tax rate and the sum of quick calculation deduction determined under Item (1) of this Article, with the formula of calculation as follows:

1. If an employee¡¯s income from wages and salaries obtained in the very month is higher than or equals to the amount for expense deduction as prescribed in the tax laws, the applicable formula should be:
Amount of tax payable = The employee¡¯s annual one-off bonuses obtained in the very month ¡Á applicable tax rate ¨C sum of quick calculation deduction

2. If an employee¡¯s income from wages and salaries obtained in the very month is lower than the amount of deducted expenses as prescribed in the tax laws, the applicable formula should be:
Amount of tax payable = (the employee¡¯s annual one-off bonuses obtained in the very month ¨C the margin between the employee¡¯s income from wages and salaries obtained in the very month and the amount for expense deduction) ¡Á applicable tax rate ¨C quick calculation deduction

III. Within a tax year, the method of calculating tax payable may only be adopted for once to each taxpayer.

IV. With respect to the entities that apply the annual salary system and performance-related wages, the individuals¡¯ year-end annual salaries and performance-related wages shall be governed by Article 2 and Article 3 of this Notice.

V. An employee¡¯s all items of bonuses other than annual one-off bonuses, such as half-year bonus, quarterly bonus, over-off work bonus, advanced employee bonus, work attendance bonus, etc., shall be combined with his income of wages and salaries in the very month for payment of individual income tax in accordance with the tax laws.

VI. With respect to all items of bonuses under Article 5 of this Notice, which are obtained by an individual without a domicile, if the individual has no tax payment obligation inside China in the very month, or has worked for less than one month in China in the very month due to entry or exit, his bonuses shall still be calculated in accordance with the ¡°Notice of the State Taxation Administration on the Issue of Levying Taxes on Bonuses Obtained by Individuals without a Domicile inside China¡± (No. 183 [1996] Promulgated by the STA) for the purpose of paying taxes.

VII. This Notice shall come into force on January 1, 2005. In case any previous provision is inconsistent with this Notice, this Notice shall prevail. The ¡°Notice of the State Taxation Administration on the Issue of Levying Taxes on Bonuses Obtained by Individuals with a Domicile inside China¡± (No. 206 [1996] Promulgated by the STA) and the ¡°Notice of the State Taxation Administration on How to Calculate and Levy Individual Income Taxes on Enterprise Operators Who Have Piloted the Annual Salary System¡± (No. 107 [1996] Promulgated by the STA) shall be repealed simultaneously.