Nothing invigorates one than a small chat when one returns from other countries. Being a CPA from USA, I invariably invoke the recent tax challenges taken up by the American government for reducing its taxation rate for its tax payers. Just looking at other countries’ position on basic taxation rates itself is an exhaustive exercise. But the motivation to undertake this write up came from a young professional who returned from New York along with myself in an Air India flight. Obviously, at a young age, he has lived in China, France, and others who would give him visa in future, Japan, in particular.
I have covered various aspects of American taxation in various articles in Tax guru, but what about China, which is in news around the world with regard to income tax?
Income tax in China
How do I know about China and its income tax for its citizen or others? Their official website quoted as under gives total information:
http://www.chinatax.gov.cn/2013/n2925/n2959/c307248/content.html
Like the preamble of my writing in general, the reader is entitled to get better informed after reading about the taxation for the individual, industries and other relevant information, juicy, of course.
Individual Income Tax in China
The following point-wise information is directly quoted from above communication:
- The individual income tax is imposed on the taxable income derived by individuals (including 11 taxable items, such as the income from wages and salaries derived by the individuals, the income from production, operation derived by individual industrial and commercial households).
- A progressive tax rate of 7 levels from 3% to 45% is applied to the income from wages and salaries
- A progressive tax rate of 5 levels from 5% to 35% is applied to the income from production and business and the income from contracted or leased operation of enterprises or undertakings derived by individual industrial and commercial households (note: which is similarly applied to the investors of sole proprietorship enterprises and partnership enterprises)
- A flat tax rate of 20% is applied to all the other types of income.
- From September 1, 2011, in terms of the income from wages and salaries, the standard monthly deduction for expenses is increased from RMB 2000 to RMB 3500.
The prescribed time limit for paying individual income tax is as follows:
- The tax withheld by the withholding agent on monthly basis, and
- The tax to be paid by the self-reporting taxpayer on monthly basis, shall be paid to the state treasury within the first 15 days of the following month; in terms of the income from production or business operation derived by individual industrial and commercial households, the tax payable shall be computed on annual basis, and the provisional income tax shall be paid in advance on a monthly basis, settled and refunded for any overpayment or supplemented for any deficiency within 3 months after the end of each tax year; in terms of the income from contracted or leased operation of enterprises and undertakings, the tax payable shall be computed on annual basis and paid to the state treasury within 30 days after the end of each tax year; in terms of the taxpayers who derive income outside China, the tax payable shall be paid to the state treasury within 30 days after the end of each tax year.
- The taxpayers who have an income of over RMB 120,000 in any tax year shall file the tax returns themselves with the tax authorities within 3 months after the end of each tax year.
The authorities explain the phrase “annual income over RMB 1,20,000 as under:
The following may be included in annual income:
- Salary and compensation,
- Income from production and operation by individually-owned businesses,
- Income from contract operation and operation under lease of enterprises or social service providers partly or wholly funded by state assets
- Compensation for labor services
- Author’s remuneration, royalty
- Interest
- Dividend and bonus
- Income from lease of property
- Income from transfer of property
- Incidental income and other income.
What about capital gains tax, (as we know it in our tax parleys) in China? Chinese authorities explain the following facts:
State administration of Taxation of the People’s Republic of China, the official government agency whose website has also been quoted above, has given answers to many questions posed by reporters to its administration. A question on capital gains tax which we mean the gain obtained by selling of share, has been dealt with by the following question and answer column from above website.
“The State Administration of Taxation has issued a document to clarify the provisions on the self-declaration of income from stock transfer. Does it mean China will levy individual income tax on income from stock transfer?
A: It is wrong. According to the Law on Individual Income Tax, the income from stock transfer belongs to the taxable item “income from transfer of property” and individual income tax shall be paid at a rate of 20%.
However, in order to support the restructuring of China’s enterprises and push ahead the healthy development of domestic securities market, with approval of the State Council, the Ministry of Finance and the State Administration of Taxation issued the Circular on Temporary Exemption of Income from Stock Transfer from Individual Income Tax (CSZ[1994] No.040), the Circular on Temporary Exemption of Income from Stock Transfer from Individual Income Tax in 1996 (CSZ[1996] No.12), and the Circular on Continuing the Exemption of Income from Stock Transfer from Individual Income Tax (CSZ[1998] No. 61) in June 1994, December 1996 and March 1998 respectively, stipulating that the income from stock transfer is temporarily exempt from individual income tax after 1994.
The 2005 newly revised Implementing Rules of the Law on Individual Income Tax stipulate that individuals with annual income of Over RMB120,000 shall declare taxes to the tax authority by themselves. The annual income includes the income from stock transfer by individuals.
Taxpayers with annual income of Over RMB120,000 are exempt from individual income tax on the income from stock transfer, although they shall declare the income from stock transfer to the tax authority by themselves.
The self-declaration of income from stock transfer and whether to levy the tax are two different matters.
Q: The State Administration of Taxation has issued a document to clarify the provisions on the declaration of income from stock transfer. What are the considerations?
A: According to the stipulation of the tax law, stocks are the property of individuals, and the income from stock transfer is treated as the “income from transfer of property”. In Article 22 of the Implementing Rules of the Law on Individual Income Tax of the People’s Republic of China, it is defined that “the tax on the income from transfer of property shall be calculated and paid according to the balance of income from one-time property transfer minus the original value of property and reasonable expenses”;
Therefore, the current tax law stipulates that the taxation on the income from stock transfer is based on the times the income is generated. Under the current scheduler tax system, the income generated at different times shall not offset each other, that is to say, all income shall be taxed, and no tax is imposed if no income is generated.
As China currently exempts the income from stock transfer from individual income tax, while studying the declaration of income from stock transfer, the State Administration of Taxation considered the following points:
An individual may engage in stock trading frequently in a tax year, so asking the individuals to record the income from every stock transfer will no doubt make tax self-declaration more difficult; meanwhile, since there are uncertainties about the profit and loss from stock trading within a tax year, when clarifying the provisions on the declaration of income from stock transfer, it is clearly stipulated that if the gain from stock transfer exceeds the loss from stock transfer within a tax year, the balance shall be included in RMB120,000;
In view of the fact that some taxpayers actually belong to the high-income group as they have annual income of more than RMB120,000 from taxable income items other than the income from stock transfer, we stipulate that if the loss from stock transfer exceeds the gain from stock transfer, the minus amount shall be zero, in order to prevent high-income people from offsetting of other income items in excess of RMB120,000 and to strengthen the monitoring of tax sources.”
My views:
I just summarize the above as tax has to be paid for the gain made in selling of stocks which will be added to the income and shall be declared in self declaration of income to authorities, when the income is RMB 1.20.000 or more. I intentionally quoted the above communication to give authenticity to the information.
Some of other taxes levied by China are as under:
- After several reforms, for the present, China has 19 tax categories, i.e. value added tax,
- consumption tax,
- business tax,
- enterprise income tax,
- individual income tax,
- resource tax,
- urban and township land use tax,
- house property tax,
- city maintenance and construction tax,
- tax on the use of arable land,
- land appreciation tax,
- vehicle purchase tax,
- vehicle and vessel tax,
- stamp tax,
- deed tax,
- tobacco leaf tax,
- customs duty, tonnage dues, and fixed assets investment orientation regulatory tax.
Customs duty and tonnage dues are to be collected by the customs, in addition, the import value added tax and import consumption tax are to be withheld by the customs.
So far, adequate information has been given about income tax in China. Anyone seriously seeking relevant information can easily approach the Embassy officials or the official website.
Let us concentrate on income tax in France, one of the pillars of European Union. As usual, the following information has been taken out of the web site of their official income tax portal
www.impots.gouv.fr/portail/files/media/french_tax_law_2015.pdf
This is an 86 pages pdf containing virtually all the information one needs to know about French income tax. To one interested in knowing the details, a careful study would lead to the tax treatment given by tax authorities which is praiseworthy and appreciable. Yes, France ranks among the highest income tax levying countries while ensuring the best living conditions to its residents.
Let us give some information for a general reader. The following information is from above pdf.
- The need for taxation is asserted in Article 13 of the Declaration of the Rights of Man and of the Citizen of 26 August 1789: “For the maintenance of the public force, and for administrative expenses, a general tax is indispensable”, adding that “it must be equally distributed among all citizens, in proportion to their ability to pay”. Article 14 of the Declaration states that “All citizens have the right to ascertain, by themselves or through their representatives, the need for a public tax, to consent to it freely, to watch over its use, and to determine its proportion, basis, collection and duration’
- French taxes can be classified under taxes on income, taxes on expenditure, taxes on assets and direct local taxes.
- Income tax can be classified as corporation tax (impôt sur les sociétés, IS), personal income tax, social levies, and payroll taxes.
- Personal income tax is in principle a comprehensive tax levied on an individual’s total income in a given year. Unless otherwise provided, all income, regardless of origin, is aggregated to give an overall net income to which a single tax scale is applied.
- Personal income tax arises out of business profits, non-commercial profits, agricultural profits, income from property, wages, salaries, pensions and annuities, investment income, and capital gains
- Under Article 4 A CGI, individuals domiciled in France are taxable on all their income of French or foreign origin. Persons not domiciled in France are taxable only on their income from French sources. For income tax purposes, France covers mainland France, the coastal islands and Corsica; and overseas departments (Guadeloupe, French Guiana, Martinique, Réunion and Mayotte10).
- The authorities calculate personal income tax on the basis of the amounts declared by taxpayers, who are required to file a single return per tax household reporting all income received in the previous year. In addition, those receiving income from professional activities (business profits, non-commercial profits, agricultural profits), investment income, income from property and capital gains on property are required to attach special declarations to the overall return. The calculation of income tax takes the taxpayer’s personal situation into account. The income tax calculation is adjusted to personal circumstances, inter alia, by means of an income splitting system and by allowing taxpayers tax reductions or credits for certain personal expenses.
- Income splitting is a way of taking dependents into account and, accordingly, to cushion the effects of progressive taxation by applying the progressive rate to a partial income, namely taxable income per part.
- The method involves dividing the tax household’s taxable income into a certain number of parts (e.g. one part for a single person, two parts for a married couple or partners of a PACS (civil union), an additional half-part for each of the first two dependent children and an additional part for each dependent child thereafter).
- The progressive tax scale is then applied to the taxable income per part. Starting in 2012, a new 45% tax bracket was introduced to tax income. The 2015 Budget Act removed the 5.5% tax bracket and lowered the threshold for application of the 14% tax bracket as from taxation of income for 2014.
- The scale, corresponding to one part, is as follows (2014 income):
- Portion of taxable income (one part) Rate
- For the portion under €9,690 – 0%
- For the portion over €9,690 and less than or equal to €26,764 – 14%
- For the portion over €26,764 and less than or equal to €71,754 – 30%
- For the portion over €71,754 and less than or equal to €151,956 – 41%
- For the portion over €151,956- 45%
Though I could cover various aspects of French taxation with other details, I find it appropriate to go for a conclusion. I may cover other aspects in future articles depending upon the willingness of readers to accept, review and appreciate the taxation systems in other countries.
“Who knows one of your children would have to go to USA, China or France or all of them due to their brilliance and international expertise?”
Conclusion
As I stated at the beginning, a young man returning from USA along with me in an Air India flight ignited the passion to know about the taxation aspects in China and France since I have a large number of clients for USA tax filing. Only when one ventures to know or appreciate the nuances of taxation of other countries like France or China, that he realizes that the world is small. Amazing as it may be, the taxation system started in France in 1789 and how can I pass any observation on their taxation rates or system of taxing without deep thought or serious application of mind. I just request the readers to do a serious contemplation after reading the above information and please do appreciate the taxation in USA and India too along with above countries who have been existing since time immemorial.
Yes, as I conclude always, consult an experienced CPA, (tax consultant) if you really need to file taxes in a foreign country.
Happy bon voyage!
Only the websites of the governments of France and China have been quoted below since I have to spend long hours of study and research to write this article which started with trepidation and ends with exhilaration.
French websites
- impots.gouv.fr/portail/files/media/french_tax_law_2015.pdf
- /www.impots.gouv.fr/portail/files/formulaires/2042/2017/2042_1950.pdf (tax return in French) – English translation not available
- For latest tax information, /www.service-public.fr
Chinese government website, in English (Obviously Chinese version is available for those well versed in Chinese language.
- http://www.chinatax.gov.cn/2013/n2925/n2959/c307248/content.html
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