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A Guideline for Individuals and Enterprises Regarding Social Assistance Related Taxed Income

China Social Assistance Foundation    2010-08-18 13:51

To better implement the Enterprise Income Tax Law of the People's Republic of China and the Individual Income Tax Law of the People’s Republic of China, the following crystallizes questions regarding social assistance related taxed income.

 

1.       Taxes are waived when all enterprises’ endowments through foundations and/or local government and departments, under the condition that the amount of endowments does not exceed 12% of its total annual profit. The total annual profit of an enterprise shall be calculated according to the Uniform Accounting System of the State. Hereby, tax deductions for public assistance endowment shall be based on annual profits in accordance with the Uniform Accounting System of the State.

 

2.       Under the consent of tax laws and its related policies, taxes are waived when individuals donate through public assistance foundations and/or government institutions. According to the sixth article of the Individual Income Tax Law of the People’s Republic of China, The part of income donated by individuals for education and other public welfare careers shall be deducted from the taxable income amount according to relevant regulations. According to the Detailed Rules for the Implementation of the Individual Income Tax Law of the People’s Republic of China, individual income donated to educational and other public welfare undertakings, areas suffering from serious natural disasters or poverty, through social organizations or government agencies in the People's Republic of China. The donation that does not exceed 30% of the taxable income claimed by taxpayers may be deducted from the taxable income.

——Hereinafter referred to from "Ministry of Finance, State Administration on Taxation and Ministry of Civil Affairs’ a Guideline for Individuals and Enterprises Regarding Social Assistance Related Taxed Income"(Cai Shui No.160)(2008)

 

Case Analysis:

 

Ex 1.If a company makes a 5 million RMB profit, then the maximum amount of donations would total 600 thousand RMB (5 million*12%=600 thousand), and its taxed income is 5 million-(5million*12%) =4.4million.

 

Ex 2.In the People’s Republic of China, a worker Mr. Wang earned a salary of 8000 RMB in the month of May in 2008; he paid 500 RMB for medical services and social security and he donated 1000 RMB to disaster-stricken areas through the local Bureau of Civil Affairs. His income tax would be calculated as follows:

1taxable income: 8000-2000-500=5500 RMB

2maximum amount of tax-free donations =5500*30%=1650 RMB

31000<1650 Thus, Wang’s 1000 RMB donation would be tax-free.

4taxes paid: (5500-1000)*15%-125=550 RMB

 

Ex 3.An individual donated all of his 5000 RMB earnings to a poverty-stricken area, through civil affair departments, his income tax would be calculated as follows:

1taxable income: 5000-5000*20%=4000 RMB

2Maximum amount of tax-free donations=4000*30%=1200 RMB

3actual taxable income=4000-1200=2800 RMB

4taxes paid: 2800*20%=560 RMB

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