Financial Planning - Summary of Taxation Law Basics
I. Tax Law and Characteristics
Tax law is an important component of national law, based on the constitution. It regulates the rights and obligations between the state and its members regarding taxation, maintains social economic order and tax procedures, safeguards national interests and tax order, and protects the legitimate rights and interests of taxpayers. Tax laws are the general term for legal norms that govern these aspects. The three characteristics of tax law are: Compulsory, Non-reimbursable, and Fixed.
II. Composition Elements of Tax Law
1. General Provisions: Includes legislative intent, legislative basis, application principles, etc.
2. Subject: Also known as the right subject, it is the bearer of the tax legal relationship. In China's current tax law, one side is the tax authorities at all levels representing the state to exercise tax management; the other side is natural persons, legal entities, and other organizations fulfilling their tax obligations.
3. Tax Object: The tax object (also called the right object) is the thing or behavior pointed to by the rights and obligations of both parties in the tax legal relationship, i.e., what the tax law should tax. For example, the tax object of enterprise income tax is the income from enterprise production and operation and other incomes.
III. Composition Elements of Tax Law (Continued 1)
4. Tax Items: Specific taxable items stipulated by each type of tax. For instance, business tax divides the tax object into 9 tax items such as transportation, construction, financial insurance, etc.
5. Tax Rate:
(1) Proportional Tax Rate
(2) Fixed Tax Rate
(3) Progressive Tax Rate (Excess Progressive Tax Rate, Super Rate Progressive Tax Rate)
Proportional Tax Rate: Applies the same percentage rate regardless of the amount of taxable object or tax item. Currently, value-added tax, business tax, enterprise income tax, etc., adopt proportional tax rates.
Fixed Tax Rate: Directly sets a fixed tax amount according to the calculation unit determined by the taxable object. Currently, resource tax, vehicle and vessel use tax, etc., adopt fixed tax rates.
IV. Composition Elements of Tax Law (Continued 2)
Excess Progressive Tax Rate: Divides the taxable amount into several levels according to the amount, specifies corresponding differential tax rates for each level, and calculates taxes on the excess part of each specified level at higher tax rates. Currently, personal income tax adopts this type of tax rate.
Super Rate Progressive Tax Rate: Divides the taxable object amount by relative rate into several levels, specifies corresponding differential tax rates, and calculates taxes on the excess part of each level at higher tax rates. Currently, land value-added tax mainly adopts this type of tax rate.
V. Composition Elements of Tax Law (Continued 3)
6. Tax Payment Period: Refers to the period during which taxpayers pay taxes according to the provisions of tax law.
7. Tax Payment Stage: Refers to the stage stipulated by tax law where taxes should be paid in the process of goods flowing from production to consumption.
8. Tax Payment Location: Refers to the specific tax payment location stipulated by tax law for each taxpayer.
9. Tax Reductions and Exemptions: Special regulations made by the state to reflect encouragement and support policies for certain taxpayers and taxable objects.
VI. Composition Elements of Tax Law (Continued 4)
10. Penalties: Also known as legal liabilities, refer to punitive measures taken against violations of tax law.
11. Supplementary Provisions: An indispensable and important component of the law, specifying the interpretation authority and effective date of the tax law.
VII. Current Tax System in China
According to different taxable objects, China's taxation is divided into three categories: Income Tax, Turnover Tax, and Behavior, Property, and Resource Tax.
Income Tax: Defined as a tax with turnover as the taxable object.
Turnover Tax: Defined as a tax with turnover as the taxable object.
Individual Income Tax: A tax levied on various taxable incomes obtained by individuals. Taxpayers include Chinese citizens as well as foreign nationals and compatriots from Hong Kong, Macao, and Taiwan who have incomes in China. Specifically:
① Resident Taxpayers: Individuals with a residence or living in China for more than one year bear unlimited tax obligations and pay taxes on all domestic and overseas incomes.
② Non-resident Taxpayers: Individuals without a residence or living in China for less than one year bear limited tax obligations and pay taxes only on domestic incomes.
VIII. Tax Calculation Basis and Rate Regulations
1. Expense Deduction Standards
① Wage and Salary Income: Deduct 800 yuan/month (or 4000 yuan/month), starting from 2006, deduct 1600 yuan/month.
② Individual Business Operating Income: The balance after subtracting costs, expenses, and losses from the total income of each tax year is the taxable income. For sole proprietorship enterprises, the total operating income is the taxable income. For partnership enterprise investors, if there is an agreement, determine the taxable income according to the distribution ratio; if not, calculate it per capita. Distribute first, then tax.
③ Contracted and Leased Income: The sum of the operating profit allocated according to regulations each tax year plus wage and salary nature income, deduct 800 yuan/month (starting from 2006, deduct 1600 yuan/month).
④ Labor Remuneration, Royalty, Licensing Fee, Property Lease Income:
A. Below 4000 yuan/time: Deduct 800 yuan
B. Above 4000 yuan/time: Deduct 20%
Example: Someone rents out private housing, with a monthly rent of 2000 yuan. What is the total personal income tax payable for the whole year?
(1) Property lease income is taxed once for the income obtained in one month.
(2) Total personal income tax payable for the whole year = (2000-800)*20%*12 = 2880 yuan
Example: Someone received licensing fee income twice in 2002, once 3000 yuan, another time 8000 yuan. How much personal income tax should be paid in total?
(1) Licensing fee income is taxed once for each transfer.
(2) Tax payable = (3000-800)*20% + 8000*(1-20%)*20% = 1720 yuan
⑤ Property Transfer Income: Transfer income - Original property value - Reasonable expenses
⑥ No expense deduction: Interest, dividends, bonuses, windfall gains, other incomes
IX. Additional Deduction Expenses Scope and Standards
① Foreign nationals working in foreign-invested enterprises and foreign enterprises within China obtaining wage and salary income;
② Foreign experts hired to work in enterprises, institutions, social organizations, and government agencies within China obtaining wage and salary income (not all foreign nationals);
③ Individuals with residences within China but employed abroad obtaining wage and salary income;
④ Other personnel determined by the Ministry of Finance obtaining wage and salary income.
Note: Overseas Chinese, Hong Kong, Macao, and Taiwan compatriots are treated similarly. For the above personnel, deduct 800 yuan/month first, then deduct 3200 yuan (i.e., deduct 4000). Starting from 2006, deduct 1600 yuan/month first, then deduct 3200 yuan (i.e., deduct 4800).
Calculation formula: Tax payable = (Monthly income - 4000 or 4800) * Applicable tax rate - Quick calculation deduction number.
X. Determination of Each Income
① Calculated per occurrence: Seven types of income explicitly calculated per occurrence: labor remuneration income, royalty income, licensing fee income, interest, dividend, bonus income, property lease income, windfall gains, other income
② Not calculated per occurrence: Wage and salary income: Calculated based on monthly income; individual business operating income: Calculated annually; enterprise and institution contracting and leasing operating income: Calculated annually.
XI. Other Regulations for Taxable Income
(1) Personal donations through social organizations or government agencies within China to education and other public welfare causes, severely disaster-stricken areas, impoverished areas, as well as through population welfare foundations and Guanghua Science and Technology Foundation, up to 30% of the declared taxable income, can be deducted from the taxable income.
(2) Personal income (excluding windfall gains) used to sponsor R&D expenses of non-associated new projects can be fully deducted from the taxable income when calculating income tax monthly, per occurrence, or annually. Insufficient deductions cannot be carried forward.
(3) Personal taxable income includes cash, physical goods, and securities. Physical goods are valued according to voucher prices; if no voucher exists or the price is low, market prices apply. Securities are valued according to face value and market prices.
XII. Calculation of Tax Payable for Various Types of Income
(1) Wage and Salary Income Formula: Tax payable = (Monthly income - 1600) * Applicable tax rate - Quick calculation deduction number
Example: An employee's taxable salary for a certain month in 2006 was 3400 yuan, paying 14 yuan for old-age insurance, 10 yuan for unemployment insurance (exceeding the standard by 2 yuan), and the company paid 100 yuan for utilities. The personal income tax payable for that month is:
Personal contributions to old-age insurance and unemployment insurance within prescribed ratios are exempt from personal income tax; however, the excess portion should be included in salary income.
Tax payable = (3400 - 1600 - 14 - 10 + 2) * 10% - 25 = 152.8 yuan
(2) Individual Business Operating Income Formula: Tax payable = Taxable income * Applicable tax rate - Quick calculation deduction number = (Annual income - Cost, expenses, and losses) * Applicable tax rate - Quick calculation deduction number
Relevant regulations: Expense deduction standards and employee wage deduction standards are determined by provincial governments. Interest expenses must not exceed amounts calculated using similar, concurrent loan interest rates. Individual businesses or individuals exclusively engaged in agriculture, animal husbandry, aquaculture, and fishing, having already paid agricultural tax and livestock tax (separately accounted), will not be subject to individual income tax again.
(3) Contracting and Leasing Operating Income of Enterprises and Institutions
1. For those owning the ownership of operating results, the contracting and leasing operating income applies five-level progressive tax rates.
Tax payable = [Annual income - Necessary expenses (1600/month)] * Applicable tax rate - Quick calculation deduction number
2. For those not owning the ownership of operating results, the contracting and leasing operating income applies nine-level progressive tax rates.
(4) Labor Remuneration Income (Tax Rate 20%)
① If each income is less than 4000 yuan, Tax payable = (Income - 800) * 20%
② If each income is between 4000 and 20000 yuan, Tax payable = Income * (1-20%) * 20%
③ If each income exceeds 20000 yuan, Tax payable = Income * (1-20%) * Tax rate - Quick calculation deduction number
④ Calculation method for withholding tax:
A. If untaxed income ≤ 3360: Taxable income = (Untaxed income - 800) / (1-Tax rate)
Tax payable = Taxable income * Tax rate
B. If untaxed income > 3360: Taxable income = (Untaxed income - Quick deduction) * (1-20%) / [1-Tax rate * (1-20%)]
Personal income tax = Taxable income * Tax rate - Quick deduction number
(5) Royalty Income (Tax rate reduced by 30%, actual tax rate is 14%)
If each income is below 4000 yuan, deduct 800; if each income is above 4000 yuan, deduct 20%.
(6) Licensing Fee Income (Tax rate 20%)
If each income is below 4000 yuan, deduct 800; if each income is above 4000 yuan, deduct 20%.
(7) Interest, Dividend, Bonus Income (Tax rate 20%)
Personal income tax = Each income * 20%
Note: Interest income generated from savings deposits before October 31, 1999, is not subject to personal income tax; interest income generated from savings deposits after November 1, 1999, is subject to personal income tax.
(8) Property Lease Income (Tax rate 20%)
Note: Deduct the following fees in sequence:
① Taxes: Including business tax, urban construction tax, real estate tax, educational surcharge.
② Actual repair costs (up to 800 yuan per time, any remaining can be indefinitely deducted in subsequent periods)
③ Expense deduction standard: 800 yuan or 20%
④ Formula: (Note: Do not reverse the order)
If each income does not exceed 4000 yuan: Taxable income = Income - Tax - Repair costs (up to 800) - 800 (expense amount)
If each income exceeds 4000 yuan: Taxable income = (Income - Tax - Repair costs) * (1-20%)
Tax payable = Taxable income * Applicable tax rate (20%)
(9) Property Transfer Income (Tax rate 20%)
Tax payable = (Total income - Original property value - Reasonable expenses) * 20%
(10) Windfall Gains (Tax rate 20%)
Tax payable = (Windfall gains - Donation amount) * Applicable tax rate
(11) Other Income (Tax rate 20%)
Tax payable = Each income * 20%
XIII. Several Special Issues in Tax Calculation
1. Income earned from part-time work is taxed under "Labor Remuneration"; income earned by retirees who return to work, after deducting expenses or standards, is taxed under "Wage and Salary".
2. Methods for taxing annual one-time bonuses earned by residents with domicile in China:
(1) Bonuses are separately calculated as one month's wage and salary income for taxation, with companies responsible for withholding and remitting.
(2) Since expenses have already been deducted monthly when calculating monthly wages and salaries, the bonus is generally taxed directly on the full taxable income according to the applicable tax rate (the tax rate and deduction number are determined by dividing the bonus by 12).
(3) If the wage and salary income of the month when the bonus is received is less than 1600 yuan, the difference between the monthly wage and 1600 yuan can be deducted from the bonus income, and the remainder is considered as taxable income for tax calculation (the tax rate and deduction number are determined by dividing the bonus minus the difference by 12).
3. Companies implementing stock options:
① Employees accepting options are not taxed;
② When employees exercise options, the difference between the exercise price and the fair market price on the day is taxed under "Wage and Salary";
③ If employees transfer options before the exercise date, the net income from the transfer is taxed under "Wage and Salary".
4. Individuals acquiring claims through some means and asserting claims through judicial procedures are taxed under "Property Transfer".
5. Companies purchasing vehicles and registering them under shareholders' names, shareholders are taxed under "Interest, Dividends, Bonuses" (considering that these vehicles are used for company operations, the competent tax authority may approve partial deductions).
6. Insurance premiums paid by companies for employees beyond the exempted range are included in the employee's monthly "Wage and Salary" for personal income tax calculation. The company is responsible for withholding and remitting the tax.
7. Marketing rewards given by companies to outstanding performers under various names, including reimbursed travel expenses and tours (including physical goods and securities):
If the recipient is an employee of the company: These expenses are fully included in the monthly wage and salary, taxed under "Wage and Salary".
If the recipient is not an employee of the company: These expenses are taxed according to the current labor income, taxed under "Labor Remuneration".
8. Commissions for insurance agents are handled in two parts:
For business development costs (proportionally set at 40%), no personal income tax is levied;
For the labor remuneration portion, after deducting the actually paid business tax and surcharges, it is taxed under "Labor Remuneration".
9. Auction proceeds from authors selling original manuscripts or copies of their works are taxed under "Licensing Fees"; for auction proceeds from other properties besides original manuscripts or copies, they are taxed under "Property Transfer".
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