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How Much IIT a Foreigner Have to Pay in China

December 13, 2019

The new Individual Income Tax law of PRC has come into effective for almost one year, but how to calculate the tax payable still remain a problem, particularly for foreigners working in China.

This post will address some main issues related:

1. A foreigner could be a“resident individuals”

individuals who do not have a domicile in China but have resided in China for 183 days or more cumulatively within a tax year, shall be deemed as resident individuals.

2. How a foreigner pay IIT as a resident individual

1. Where the foreigner resides in China for 183 days or more cumulatively per tax year for less than six consecutive years.

his/her income from all salaries shall be subject to individual income tax, except for the portion of salaries paid by an overseas employer.

2. Where the foreigners resides in China for 183 days or more cumulatively per tax year for more than six consecutive years.

his/her income from salaries derived in China and overseas shall be subject to individual income tax.

3. Computation of tax payable

Tax payable over all comprehensive income shall be subject to individual income tax annually, the formula for computation of tax payable is as follows:

Tax payable for annual comprehensive income = (annual salary – deduction – special deduction – special additional deduction – other deductions determined pursuant to the law) × applicable tax rate – quick deduction.

4. Year-end bonus

Before 1 January 2022，year-end bonus will not be treated as “comprehensive income” such as salary, or monthly bonus. This bonus shall be apportioned over 12 months for tax computation purpose, with no deduction, and subject to the Monthly Tax Rate Table for computation of tax payable; this tax computation method can only be applied once within a calendar year.

The computation formula shall be as follows :

Tax payable = [ × applicable tax rate – quick deduction] × 12

5. Allowances and subsidies and special additional deduction

Before 1 January 2022, a foreigner may choose to claim deduction for eight allowances and subsidies such as: housing allowance, child education fee, language training fee etc, instead of claiming special additional deduction. After 1 January 2022, only special additional deduction available.

However, for special additional deduction, including children’s education, continuing education, medical treatment for major illness, housing loan interest or housing rent, support for the elderly, will be deducted as per provision.

Quick Computation Chart for Individual Income

Grade	Annual taxable income	Tax rate (%)	Quick Deduction
1	Income of RMB 36,000 or less	3	0
2	The part of income in excess of RMB 36,000 to 144,000	10	2520
3	The part of income in excess of RMB 144,000 to 300,000	20	16920
4	The part of income in excess of RMB 300,000 to 420,000	25	31920
5	The part of income in excess of RMB 420,000 to 660,000	30	52920
6	The part of income in excess of RMB 660,000 to 960,000	35	85920
7	The part of income in excess of RMB 960,000	45	181920

Applicable to yearly comprehensive income

Example A:

David’s yearly salary: 360000RMB, allowance is 120000RMB, the taxable income is 360000—60000-120000=180000RMB， tax payable=180000*20%-16920=19080RMB

Example B:

David get a year-end bonus, which is 50000RMB,

50000/12=4166.67

Tax payable=(4166.67*10%-210)*12=2103.34RMB

Useful link:

State Taxation Administration

IIT in China, residential individual, tax deduction

Optimization of Business Environment

December 8, 2019

On Jan. 1, 2020, the Foreign Investment Law will come into effect. In addition, the Regulation on the Optimization of Business Environment will come into effect as well, which was promulgated on October 8, 2019. This is good news for people doing business in China.

Let’s look at some highlights of these new regulations:

1. The direct allocation of market resources and the direct intervention in market activities by the government will be reduced, minimizing institutional-oriented transaction costs.

2. The establishment of a unified, open, and modernized market system designed to promote the free flow of various production elements, and guarantee fair market competition, is expected to be accelerated.

3. China government shall further open up domestic (Chinese) business to the outside world and actively promote foreign investment, giving equal treatment to domestic-funded enterprises and foreign-invested enterprises.

China government determined to relax restrictions on market access and implements a national unified negative list system for market access.

4. Competent authorities will establish a punitive compensation system for infringement of intellectual property, improve the assistance mechanism for protecting intellectual property, and intensify the protection of intellectual property. They will also Improve the efficiency of trademark registration and the patent application review.

5. Enterprise registration rules, streamline of the formalities required for enterprise registration will be standardized. The reform of “separation of permits and business licenses” will be promoted.

For existing administrative permits, they will either cancel examination and approval of some permits or change the examination and approval procedure to record filing, or the business owner will have to promise that they are qualified (or will be qualified) within a certain timeframe, or optimize the examination and approval procedure, improve examination and approval efficiency, if the permits are still required. Except for specific areas stipulated by laws and administrative regulations, permits shall not be a prerequisite for enterprise registration.

6. Relaxes restrictions on market access and implements a national unified negative list system for market access.

Useful link:

MINISTRY OF COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA

business environment, foreign-invested enterprises, IPR protection

Further Utilize Foreign Investment

November 20, 2019

On 7th of Nov, 2019, the State Council released the Opinions on Further Improving the Utilization of Foreign Investment, which put forward 20 measures to utilize foreign investment further. The measures could be divided into four aspects namely, deepening market openness to foreign investors, promoting investment, deepening reform to facilitate investment and protecting the legitimate rights and interests of foreign investors.

Specific provision includes:

1. Move faster to further open up the financial industry.

China will eliminate all restrictions on the scope of business for foreign banks, securities companies and fund management companies, and remove requirements on total assets for the establishment of foreign-funded banks.

2. Deepen reform to facilitate investment.

China will lower the cost of cross-border capital use, and optimize the approval process for the use of land for foreign-funded projects.

3. Continue to reduce the negative list of foreign investment access in the national and free trade pilot zones, and comprehensively clean up and remove restrictions that are not included in the negative list

China will deepen market openness to foreign investors, promoting investment and protect the legitimate rights and interests of foreign investors

4. Optimize foreign investment policies in the automotive sector.

5. Make it easier for foreigners to work in China.

For innovative entrepreneurial talent and talent with professional skills that are urgently needed in China, restrictions over age, education and work experience etc. can be appropriately relaxed. Foreign students with an intention to innovate and start a business may apply for a 2-years residence permit in the private affairs category with the diploma of Chinese university. For foreigners who have applied for a work-type residence permit twice consecutively, a 5-years work-type residence permit can be issued in accordance with the provisions upon the third application. The government will optimize the process of applying for work permits for foreigners to work in China, improve the information sharing mechanism among governmental departments, and explore the possibility of integration of work permits and residence permits.

6. Guarantee equal participation in government procurement in accordance with the law.

7. Improve the protection mechanism of intellectual property rights of e-commerce, and improve the rules for notification of patent infringement determination and removal of the infringing list on e-commerce platforms.

8. Optimize the requirements of the form of evidence in intellectual property cases involving foreign-invested enterprises, apply the presumption of fact and reasonably reduce the litigation burden of such enterprises. Strengthen the protection of trade secrets, reasonably allocate the burden of proof, and strengthen civil and criminal protection of IPR.

Useful link:

MINISTRY OF COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA

E-commerce, foreign investment, IPR protection in China

Tax Credit Repair in China

November 17, 2019

On 13th of Nov, 2019, the State Taxation Administration released an Announcement on Matters Related to Tax Credit Repair, to be effective from January 1, 2020.

entity taxpayers may apply to the competent tax authorities for tax credit repair within the prescribed time limit if they correct their behavior

According to the announcement, entity taxpayers may apply to the competent tax authorities for tax credit repair within the prescribed time limit if they satisfy one of the following conditions:

(1) They have handled the tax declaration, tax payment and data filing, after failing to do so, in accordance with the statutory time limit, or

(2) For those who failed to pay tax in full, or pay overdue fine as demanded by the tax authorities however, whose behavior is not serious enough to constitute a crime, (hence they were directly considered as a D-level credit taxpayer), if they have paid or made up all tax payable within 60 days upon the final decision made by competent tax authorities.

(3) The taxpayer fulfills the corresponding legal obligations and the tax authorities lift the abnormal household status according to law.

According to the announcement, the prescribed deadline should be the end of next year when the taxpayer is put in the record by the tax authorities. The tax authority will adjust the status of the taxpayer’s credit evaluation index according to the correction of their behavior, and re-evaluate the tax credit level of the taxpayer, but may not evaluate it as A-grade.

Meanwhile, the announcement stipulates that the tax credit repair can only be applied once in a tax year.

Useful link:

State Taxation Administration

Tax credit, tax credit in China

MICHAEL JORDAN’s Trademark War in China

November 11, 2019

On October 16th 2019, the Supreme Court of PRC concluded the trademark dispute of Jordan Sports Company in Fujian province, holding that the trademark of the famous basketball player’s silhouette did not reflect Jordan’s personal characteristics, was not recognizable and did not constitute infringement of MICHAEL JORDAN’s right of portrait. Thus, they ruled in favor of Jordan Sports Company. That means the eight-year-old legal battle has finally come to an end with Jordan Sports Company retaining its “Jordan” trademark, it can put down its baggage for a second-round IPO preparation.

As the plaintiff, Michael Jordan claimed that the basketball player’s silhouette is an infringement of his portrait right. To be honest, based on Jordan’s status in those days, most consumers are inclined to link this silhouette to the name of MICHAEL JORDAN. Nevertheless, this silhouette is hardly a “portrait” of anyone in the legal sense, as there is no face at all! The Supreme Court declared that the disputable trademark “doesn’t reflect Jordan’s personal characteristics and is not recognizable”, thus they don’t think this trademark infringes Jordan’s portrait right.

Honestly speaking, this result is to many people’s surprise. After all, it’s an obvious fact that, Jordan Sports Company did take advantage of the name “Jordan” – the basketball celebrity of The United States for many years. Many Chinese consumers were misled by the trademark and believed the product produced by Jordan Sports Company was more or less related to MICHAEL JORDAN. For example, they believed that MICHAEL JORDAN was probably the image spokesperson of the products, or the product originated in the US. The truth is, Jordan Sports Company is a 100% Chinese company incorporated in Jinjiang of Fujian province, a city famous for its’ shoe-making industry, they have nothing to do with the USA nor MICHAEL JORDAN. Back in China twenty years ago, the IPR protection legal system was not very well established, by playing edge ball, this Company took advantage of the great reputation of MICHAEL JORDAN to open the market of sport products.

In fact, this lawsuit is just one of the series of lawsuits Jordan filed about the trademark “Jordan” or it’s Chinese transliteration or pinyin since 2012. According to Trademark Law of PRC, the general principle for trademark registration is ‘first-to-file’, meaning that whoever applied for the trademark first will get it. The exception is “prior rights”: meaning that applying for trademark registration may not prejudice the existing or ‘prior’ rights of others.

MICHAEL JORDAN had asked for revocation of 78 registered trademarks owned by Jordan Sports Company, based on the “prior rights” of his name, or based on an accusation of infringement on the portrait right.

In 2016, the Supreme Court ruled revocation of three of the 78 registered trademarks. Three trademarks “乔丹” (the Chinese transliteration of Jordan) owned by Jordan Sport Company were revoked based on the argument that Michael Jordan had a prior right over these two Chinese characters. Michael Jordan’s victory however seems not so great at all, because the revoked “乔丹” trademarks were merely defensive trademarks by Jordan Sports Company, applying to category 25, 28 and 32. The products that these three revoked trademarks related to were baby clothing, wedding dresses, beer, etc. and not the more important items such as sports shoes, sportswear, etc. because the time limit for making an application for revocation on these more important products had already expired. The time limit for revocation of a registered trademark is five years, MICHAEL JORDAN did not file a lawsuit against the “乔丹” trademark until 2012. It was therefore too late to revoke all of the other trademarks which had been registered more than five years ago.

Michael Jordan’s team didn’t pay much attention to the China market and therefore missed their best chance to defend their rights

As a matter of fact, as the deadline of revoking the 乔丹 trademark on the category “sneaker” was missed, it won’t be easy for Michael Jordan to protect his rights any more. Initially, Michael Jordan’s team didn’t pay much attention to the China market and therefore missed their best chance to defend their rights, what’s done is done.

On the other hand, for Jordan Sports Company, they missed the 2012 time window for IPO because of this eight-year’s proceeds, they paid their price too.

We are going to discuss other lawsuits between Michael Jordan and Jordan Sports Company to help people to understand the reason behind the judgement.

Useful link:

TRADEMARK OFFICE OF NATIONAL INTELLECTUAL PROPERTY ADMINISTRATION, PRC

Jordan Sports Company, MICHAEL JORDAN, MICHAEL JORDAN’s trademark, Prior right in trademark law, trademark lawsuit in China

Highlights of The Amended Trademark Law of PRC

November 4, 2019

On 1^st of Nov 2019, the forth amended Trademark Law of PRC took effect officially. Some long-term “headaches” for overseas corporations are addressed in this updated law.

The highlights are as follow:

1. Malicious squatting will be cut down in multiple ways.

For quite a while now, trademark malicious squatting has been a nightmare for many overseas entities intending to do business in China. More often than not, when these companies started their adventures in China, they found not only their brands, but also some similar brands, or even the Chinese transliteration of their brands, had been registered by someone already. As a result, there were very few options left: either they “buy” their brands back at an astonishingly expensive price, or they file a series long-lasting lawsuits to win it back (check our previous post How to Get Back My Trademark in China? ). The only legal ground they could count on were the provisions in article 44 of the Trademark Law: apply to invalidate the registered trademark.

However, in practical court hearings, they found it was very difficult to get a positive outcome unless their brands had a strong name recognition, locally.

The new amendments have been put in place to address this and other issues.

the updated Trademark Law of PRC is intended to combat malicious squatting in initial review procedure, and malicious litigations

According to Article 4 of the updated Trademark Law: “Any application for trademark registration that is malicious and is not filed for the purpose of use shall be rejected.”

The reviewers of trademark registration are granted rights to reject any malicious application in the initial review stage. In article 19, it also stipulates that the trademark application agent has a duty to review to consider if a trademark application is malicious and shall not accept the entrustment to proceed if deemed a malicious trademark application. Furthermore, malicious squatting is one of the reasons to file an objection or invalidation before or after a trademark certificate is granted, based on the provisions in Article 33 and 44. In other words, the updated Trademark Law is intended to combat malicious squatting in initial review procedure, application agency procedure, application objection and trademark invalidation procedure.

Of course, how this provision of “trademark registration that is malicious and is not filed for the purpose of use” is applied in practice must be clarified by relevant implementing regulations or judicial interpretation. Generally speaking, malicious squatting should refer to any application of identical or similar trademark which:

1. Is owned by others;

2. Has some popularity;

3. In a category far beyond the applicant’s own scope of business.

2. Malicious registration and litigation will be punished.

 Article 68 of the updated Trademark Law provides punishment for people who violate the provisions in Article 4 and Article 19. It also provides that: “Whoever maliciously applies for trademark registration shall be subject to a warning, a fine, or any other administrative punishments, as the case may be; and whoever maliciously lodges a trademark lawsuit shall be penalized by the People’s Court according to law.”

3. More compensation for trademark infringement.

Another highlight of this amendment is the increase of monetary compensation for trademark infringement. According to Article 63 of the amended Trademark Law, “For malicious infringement of exclusive rights to use trademarks, in serious cases, the compensation amount shall be determined in accordance with the aforesaid method based on one to five times of the determined amount,” while the original provision provides “one to three times” of the determined amount.

Where it is difficult to determine the actual losses suffered by the trademark owner due to the infringement or the gains derived by the infringer from the infringement or the licensing fee of the registered trademark, the Court shall rule on a compensation amount of not more than RMB 5 million based on the extent of the infringement, while the original provision stipulate a compensation of “not more than RMB 3 million”.

Useful link:

TRADEMARK OFFICE OF NATIONAL INTELLECTUAL PROPERTY ADMINISTRATION, PRC

amended China trademark law, Amended trademark law of PRC, compensation for trademark infringement, malicious litigation, malicious squatting

Updated! Treatment for Non-Resident Taxpayers

October 25, 2019

On October 21st, 2019，the State Administration of Taxation (SAT) of the PRC released the updated Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treat under Tax Agreement. The new regulation will be implemented from January 1st, 2020, while the previous edition will be abolished at the same time.

Let’s see the highlights:

1. Identification

“Non-resident taxpayer” mentioned here refers to the taxpayer who shall be the tax resident of the contracting party in accordance with the residents’ provisions of the Tax Agreement.

“Agreement treatment” mentioned here refers to the entity income tax and individual income tax obligations that in accordance with the domestic tax law may be reduced or exempted in line with the Tax Agreement.

2. Main procedure

Non-resident taxpayers shall determine by themselves whether they are eligible for tax privileges, and file an application for such privileges. They should keep relevant information to prepare for future examinations.

If a non-resident taxpayer finds that he should not enjoy the agreed treatment and had paid less or no taxes, he shall voluntarily file a tax supplement with the competent tax authority.

If a non-resident taxpayer paid more tax than agreed treatment, he may, within the time limit prescribed by the Tax Collection and Administration Law of PRC, request the refund of the overpaid tax to the competent tax authority, and submit the relevant information stipulated in the Measures.

3. The above-mentioned relevant information includes:

Updated Measures for the Administration of Non-Resident Taxpayers' Enjoyment of the Treat under Tax Agreement will be implemented from January 1st, 2020,

(1) The identification of tax residents of the current year or in the previous year, issued by the tax authorities of the contracting parties;

(2) Contracts, agreements, resolutions of the board of directors or shareholders’ meetings, payment certificates, etc. relating to the acquisition of relevant revenue;

(3) Where the non-resident taxpayer enjoys the agreed treatment relating to dividends, interest and royalties, relevant information certifying the status of “beneficiary”;

(4) Other information that non-resident taxpayers consider to be able to prove that they are eligible for the agreed treatment.

4. Simplification of Paperwork

The new regulation has reduced paperwork for non-resident taxpayers, who only have to file one statement.

However, if the original information required by the competent tax authority is in foreign languages, a Chinese translation shall be attached and the non-resident taxpayer shall be responsible for the accuracy and completeness of the translation.

Non-resident taxpayers and withholding agents may provide copies of information to the competent tax authorities, but they shall mark the original storage places on the copies and stamp the seal or seal of the person responsible for the report. If the competent tax authority requests the original to be examined, they shall produce the original.

5. Legal liability

If a non-resident taxpayer is not eligible for tax privileges but it pays less or no tax as a result, tax agency shall collect the unpaid tax and hold the taxpayer accountable for delaying tax payment, unless the withholding agent is responsible for the delay.

New IIT Law’s Impact on Foreigners

Useful Link:

State Taxation Administration

entity income tax, Individual income Tax, non-resident taxpayer, tax treatment

How to File a Lawsuit in China (P2-evidence)

October 22, 2019

After considering jurisdiction (which we can actually think about as early as when making a deal because one can agree to a more favorable jurisdiction in one’s contract), the next thing we need to consider is evidence.

According to PRC civil procedure law, evidence that can be accepted by the judge includes:

(1) statements of litigants;

(2) documentary evidence;

(3) physical evidence;

(4) audio-visual materials;

(5) electronic data;

(6) witness testimony;

(7) expert evaluations; and

(8) inquest records.

Litigants can make their statement via their pleadings or by oral argument during court hearings; litigants may apply for an expert evaluation or the judge may order an expert evaluation if the judge believes that it will help establish the facts of the case and uncover the truth of the matter.

However, besides the statements of litigants and the expert evaluations, other evidence may need to be submitted to the court. Litigants should be aware of the specific time limits relating to the submission of evidence as failing to adhere to these time limits could cause adverse consequences. If litigants cannot provide supportive evidence of their claim or cannot provide the evidence in a timeous manner then they may have to face an unfavourable result.

The following are other general rules regarding civil evidence:

1. Priority

Among all the evidence, notarized documents shall be taken as the basis for ascertaining facts by the court, unless there is evidence to the contrary sufficient to invalidate the notarization.

Generally, a pure statement of the litigants without other evidence is hard to be accepted by the judge. But, if the statement is against the very same person who made the statement, it will be used. So, litigants should be careful not to say things that will negatively affect their case.

Though witness testimony is listed as evidence, it is not easily accepted by the judge. Ideally, two or more witnesses had better testify to corroborative each other’s testimony. In other words, the testimony is more likely to be accepted by the judge if two or more witnesses make the same or similar statements. The problem with witness testimony as evidence is that the opposing party can simply say “the reason they said so and so, is because they are friends or is because the witness hates me.” This is why other forms of evidence are so important in proving the facts of the case.

2. Electronic data

In recent years, more and more people communicate or even make deals via e-communication，electronic data is also accepted. In a collateral explanation given by Supreme People’s Court, Supreme People’s Procurator, Ministry of Public Security stipulates that e-evidence shall include the following:

published information in web pages, blogs, micro-blogs, friends circle, paste bar, Internet disk and other network platforms;
mobile phone text messages, e-mails, instant messaging, communication groups and other communication information in network applications;
user registration information, authentication information, electronic transactions, communication records, login logs etc.;
documents, pictures, audio and video, digital certificates, computer programs and other electronic files.

Although this explanation is given particularly about criminal evidence, the principal rules herein have been extensively applied to other procedures.

notarized documents shall be taken as the basis for ascertaining facts by the court, unless there is evidence to the contrary sufficient to invalidate the notarization.

3. Original or copy

When the plaintiff files a lawsuit, he can only submit copies of the evidence. However, all originals should be shown in court room during the court hearing. A cross-examination will be conducted before court debate. A litigant can refuse to conduct cross-examination on the evidence, if the other party failed to provide the original. However, if the judge believes that the other party is withholding the original because the evidence is against him, the judge can, at his discretion, accept the copy.

4. Application for investigation

Usually it’s the litigants’ duty to provide evidence. However, under some objective circumstances, if it’s impossible for the litigant to do so, the litigant can apply for an investigation by the court.

Evidence must be verified to be true before it can be used as the basis for ascertainment of facts.

Useful link:

The Supreme People’s Court of The People’s Republic of China

evidence in China court, file lawsuit in China, how to win, how to win case in China, lawsuit

How Much IIT a Foreigner Have to Pay in China

1. A foreigner could be a“resident individuals”

2. How a foreigner pay IIT as a resident individual

3. Computation of tax payable

4. Year-end bonus

5. Allowances and subsidies and special additional deduction

Optimization of Business Environment

Further Utilize Foreign Investment

1. Move faster to further open up the financial industry.

2. Deepen reform to facilitate investment.

Tax Credit Repair in China

MICHAEL JORDAN’s Trademark War in China

Highlights of The Amended Trademark Law of PRC

1. Malicious squatting will be cut down in multiple ways.

2. Malicious registration and litigation will be punished.

3. More compensation for trademark infringement.

Updated! Treatment for Non-Resident Taxpayers

1. Identification

2. Main procedure

3. The above-mentioned relevant information includes:

4. Simplification of Paperwork

5. Legal liability

How to File a Lawsuit in China (P2-evidence)

1. Priority

2. Electronic data

3. Original or copy

4. Application for investigation

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