Question:
(a)Mrs Li had the following sources of income in the year 2015:
(1)She won a prize of RMB876,000 from the Sports Lottery.
(2)She received an insurance compensation of RMB60,000 from a medical and life policy. She had paid a premium of RMB40,000 for this policy.
(3)She placed RMB150,000 on a time deposit account with a bank for six months and received interest at the rate of 6% per annum.
(4)She received a villa from her husband as part of their divorce settlement. The villa had cost RMB5,000,000 and is currently valued at RMB9,500,000.
(5)She had invested in SH Petro, an A-share listed company, in 2010 and in October 2015 received a dividend of RMB5,000 from this company.
(6)She sold the shares in her personal company to a foreign investor and received RMB8,000,000 for agreeing not to compete in the same business for three years.
Required:
Calculate the individual income tax (IIT)payable by Mrs Li on each of her items of income (1)to (6)for 2015. Clearly identify any item(s)which are not taxable as either 'tax exempt' or 'not subject to IIT'.
Note: Ignore value added tax and business tax.
(b)Ms Wu is an expatriate working and living in Guangzhou. Her remuneration package for 2015 is as follows:
Required:
Calculate the total individual income tax (IIT)payable by Ms Wu on her employment income for 2015 on the assumption that Ms Wu qualifies for all possible tax incentives allowable under the IIT rules.
(c)Mr Huang is a China tax resident who has to file an annual individual income tax (IIT)return for 2015. His income and IIT withholding status for 2015 are as follows:
Required:
Calculate the individual income tax (IIT)which Mr Huang has to pay on filing his annual IIT return for 2015.
Note: Because the rental income is less than RMB30,000 per month it is exempt from value added tax/business tax.
Answer:
(a)Mrs Li - Individual income tax (IIT)for 2015
(1)Sports lottery prize: (876,000 x 20%)= RMB175,200
Tutorial note: A prize of RMB10,000 or less is exempt from IIT.
(2)Insurance compensation: exempt from IIT. [Article 4, IIT Law]
(3)Interest on time deposit with a bank: temporarily exempt from IIT.
(4)Villa received from a divorce: not subject to IIT. [Tax notice Guo Shui Fa (2009)No. 121]
(5)Dividend from a listed company on shares held for over one year: temporarily exempt from IIT.
[Tax notice Cai Shui (2015)No. 101]
(6)Non-competition payment: (8,000,000 x 20%)= RMB1,600,000
Tutorial note: Taxed as incidental income according to tax notice Caishui (2007)No. 102.
(b)Ms Wu - IIT on employment income for 2015
Tutorial notes:
- Reasonable amount of housing allowances and meal allowances received on a reimbursement basis by an expatriate are exempt from IIT provided the relevant supporting documents are available.
- Only one bonus can use the special formula to calculate IIT and the other bonuses will be added to the salary of the month to calculate IIT.
- Since Ms Wu lives in Guangzhou, she is not qualified for the tax exemption for tuition fees for her children studying in Hong Kong, based on tax notice Caishui [2004] No. 29.
(c)Mr Huang - IIT on filing the annual return for 2015
Question:
(a)GFH Ltd,a manufacturing company set up in Xi'an,produces and sells integrated circuits to an overseas associated company. It has not applied for the tax incentives for integrated circuits enterprises. GFH Ltd's statement of profit or loss for the year ended 31 December 2015 is as follows:
The following information is relevant to the items charged/credited in the above statement of profit or loss:
(1)The accountant has used the last in,first out (LIFO)method to value the inventories. If the first in,first out(FIFO)method were used,the cost of goods sold would have been reduced by RMB350,100.
(2)The increase in the provision for obsolete inventory was RMB123,450.
(3)A piece of equipment with a net book value of RMB80,000 was scrapped for nil proceeds.
(4)RMB1,000,000 was paid to a senior production manager in lieu of notice for early dismissal.
(5)In 2014,an antique vase was bought for RMB3,500,000 and put in the CEO's room for display. A ten-year economic life without scrap value has been used to calculate depreciation on this asset.
(6)Research and development expenses of RMB123,000 were incurred for a project which qualifies for an additional tax deduction.
(7)The salaries of the disabled employees hired by GFH Ltd in 2015 were RMB345,120. This cost qualified for the tax incentive.
(8)A donation of RMB25,000 was made to some students of a remote school.
(9)Interest at the rate of 25% per annum was paid on a loan of RMB8,000,000 from a finance institution in Xi'an. The interest rate of the People's Bank of China was 5%.
(10)Entertainment expenses incurred were RMB5,210,200.
(11)GFH Ltd acquired a new business in 2013 and paid RMB6,500,000 for the business' goodwill. This goodwill is being amortised over a period of ten years.
(12)GFH Ltd acquired a patent from another company in 2014 and paid a fee of RMB3,200,000. This patent fee is being amortised over a period of ten years.
(13)The dividend payable to the shareholder of GFH Ltd of RMB1,200,000 was treated as part of costs and expenses.
(14)Newly acquired equipment costing RMB2,500,000 qualifies under the Safety Production Special Equipment Catalogue.
(15)A warehouse was destroyed by a flood. The loss incurred of RMB150,000 was not covered by insurance.
(16)Irrecoverable input value added tax (VAT)on an abnormal loss amounted to RMB119,000.
(17)A subsidy of RMB3,000,000 was received from the Xi'an government for a specific project in 2013. The project was completed in 2015 and the amount spent on the project totalled RMB2,789,500. The balance of RMB210,500 was treated as income of 2015.
(18)GFH Ltd has granted an associated company in Vietnam the right to use its technology. The royalty income received of RMB90,000 was after the deduction of 10% Vietnamese withholding tax.
(19)GFH Ltd invested in an associated company in India in 2010. The profit of RMB123,100 is the proportion of the associate company's profit attributable to GFH Ltd and is included in its consolidated accounts. GFH Ltd pays enterprise income tax (EIT)at the standard rate.
Required:
Calculate the enterprise income tax (EIT)payable by GFH Ltd for the year 2015,assuming that GFH Ltd has made all the relevant applications.
Note: You should start your computation with the net profit figure of RMB2,590,400 and list all of the items referred to in notes (1)to (19)identifying any items which do not require adjustment by the use of zero (0).
(b)The company's accountant has proposed that GFH Ltd should apply for the following enterprise income tax (EIT)
incentives for the year 2015:
(1)a qualified integrated circuit enterprise; and
(2)an encouraged industry under the Central and Western catalogue.
Required:
State the preferential treatments available under each of these two enterprise income tax (EIT)incentives.
Answer:
GFH Ltd
(a)Enterprise income tax (EIT)for 2015
(b)Preferential treatments available
(1)Qualified integrated circuit enterprise: a two-year exemption and three-year half rate of EIT starting from the first profit making year.
(2)Encouraged industry under the Central and Western catalogue: 15% tax rate until the end of 2020.
