Financial Departments（Bureaus）and Local Taxation Offices of the Provinces，Autonomous Regions，Municipalities Directly Under the State Council and Cities That Prepare Separate Budget：In order to implement the "Circular of the State Council on Issues Related to the Levying of Income Tax on Individually Owned and Jointly Owned Enterprises（GF No. 16 [2000]）（hereafter referred to as the Circular）and to do a perfect job in the administration of taxation of the individual income tax（IIT）on investors of individually owned and jointly owned enterprises，the Ministry of Finance and the State Administration of Taxation formulated the "Provisions for the Taxation of Individual Income Tax on Individually Owned and Jointly Owned Enterprises"（hereinafter referred to as the Provisions）：
　　I. Leaderships at all levels should pay great attention to the work of policy readjustment and taxation to ensure its smooth carrying out. The Circular of the State Council that offers to cease taxation of enterprise income tax on individually owned and jointly owned enterprises but to levy only IIT on the individual income of investors from the operation of their investment in individually owned and jointly owned enterprises is a major policy readjustment aimed at encouraging investment by individuals，maintaining fairness in tax obligations and further improvement of our taxation system. It creates conditions for further growth of individually owned and jointly owned enterprises and helps enhance a sustained，steady and healthy development of our national economy；it is a major measure aimed at standardizing our income tax system and helps strengthen the levying of income tax. Therefore the leaderships of the taxation departments at all levels should pay great attention to，carefully organize and faithfully implement all relevant tasks aimed at implementing the spirit of the State Council Circular，have a tight grasp of information about the changes to the taxation and state revenue caused by this policy readjustment and timely find resolutions to relevant issues cropping up from time to time so as to ensure practical implementation of the policy and the work of taxation.
　　II. It is important to do a good job in publicity and interpretation of this policy readjustment. The work of readjusting the income tax policy regarding individually owned and jointly owned enterprises and their investors involves a large number of enterprises and individual investors，is of profound policy consideration and draws extensive attention in our society. Therefore it is important to do a good job in publicity and policy interpretation. Workers of the taxation departments must primarily have a firm grasp of the essence and significance of the Circular of the State Council and the contents of those Provisions，and on the basis of which make extensive publicity to individual investors on the great significance of the Circular supporting and encouraging individuals to make investment in founding and running enterprises as well as the concrete stipulations of the tax policy readjustment and concrete methods of tax collection and administration so as to lay a good foundation in all fields for the implementation of the Circular and tax collection and administration.
　　III. It is necessary to grasp the information about the individual investors and tax sources. The taxation departments should keep in contact in time with the administrative departments for industry and commerce and lose no time to obtain the basic information of the individually owned and jointly owned enterprises and their investors，build channels for constant exchanges of information to be in track with the ongoing situation of the registration of individually owned and jointly owned enterprises；it is necessary to demand the already established individually owned and jointly owned enterprises update their taxation registration within a fixed time limit；It is necessary to ensure close internal working connections in tax administration and build files of individual investors and maintain classified management of the information of checkups of taxation，verification of the collection of taxes from major taxpayers and general taxpayers；it is necessary to keep in principle the original level of the tax amounts with regard to the income tax on individually owned and jointly owned enterprises having been changed to tax IIT on investors after checking up those income tax on individually owned and jointly owned enterprises liable to income tax.
　　IV. It is necessary to achieve a smooth transition in the preferential treatment in the taxation of income tax. For those individually owned and jointly owned enterprises which have ceased to pay enterprise income tax but the preferential treatment to them on taxation allowed them in accordance with the relevant provisions for enterprise income tax has not expired，such preferential treatment may continue up to December 31，2000. Beginning from January 1，2001，the preferential treatment on enterprise income tax shall cease to operate and the relevant Provisions for IIT shall be enforced accordingly.
　　V. It is necessary to do well the work of giving final settlement of the taxation of IIT by the end of 2000. The enterprise income tax on individually owned and jointly owned enterprises which has been paid in advance may be used to pay the IIT on the investors when they make final settlement of their tax payments after the end of 2000. If there is need to make tax payment reimbursement in the year-end settlement，the enterprise income tax paid in advance should be reimbursed first and when that is insufficient to make the reimbursement，reimbursement of the remaining part may be made from the IIT already paid in advance.
　　Appendices：
　　1. Provisions for Individual Income Tax on Individual Investors of Individually Owned and Jointly Owned Enterprises
　　2. Form of application for registration of IIT on individual investors of individually owned and jointly owned enterprises
　　3. Form of application for registration of aggregation of IIT to be paid by individual investors of jointly owned enterprises；
　　4. Notes on the "Form of Declaration of Individual Income Tax on Individual Investors of Individually Owned and Jointly Owned Enterprises"
　　5. Notes on the "Summary Declaration of Individual Income Tax on Individual Investors of Jointly Owned Enterprises"
　　The Ministry of Finance and the State Administration of Taxation
　　September 19，2000
　　Appendix I：
　　Provisions for Individual Income Tax on Individual Investors of Individually Owned and Jointly Owned Enterprises
　　Article 1 In order to materialize the essence of the "Circular of the State Council regarding Issues Related to the Taxation of Income Tax on Individually Owned and Jointly Owned Enterprises"，these Provisions are formulated in accordance with the "Law of the People's Republic of China on Individual Income Tax" and the Regulations for the Implementation thereof and the "Law of the People's Republic of China on the Administration of Taxation" and the Detailed Rules for the Implementation thereof：
　　Article 2 "Individually owned and jointly owned enterprises" as mentioned in these Provisions refers to：
　　1. Those individually owned and jointly owned enterprises already registered in accordance with the "Law of the People's Republic of China on Individually Owned Enterprises" and the "Law of the People's Republic of China on Jointly Owned Enterprises"；
　　2. Privately owned enterprises of the nature of individually owned or jointly owned enterprises registered in accordance with the "Provisional Regulations for the Implementation of the Law of the People's Republic of China on Private Enterprises"；
　　3. Partnership law firms or offices registered in accordance with the "Law of Advocates of the People's Republic of China"；
　　4. Any individually owned or jointly owned establishments or organizations of unlimited liabilities or unlimited joint and several liabilities founded with the approval of relevant government institutions in accordance with the law.
　　Article 3 The investor of an individually owned enterprise shall be the taxpayer and each and every investor of a jointly owned enterprise shall be the taxpayer（hereinafter referred as the investor）。
　　Article 4 Individual income tax on the investor of an individually owned and jointly owned enterprise（hereinafter referred to as the enterprise）shall be computed on the basis of the annual gross income of the individual investor from the production or operation of the enterprise after deducting costs，payments of fees and losses at the applicable five-bracket progressive tax rates ranging from 5% ～ 35% as compared to the taxable item of the "returns of individual industrial and commercial operators from production or operation".
　　The "gross income" as mentioned in the previous paragraph refers to all types of income from production and operation and other relevant activities in connection with production and operation of the enterprise including income from sales of goods（products），income from business operation，income from labor service，income from construction charges，incomes from rents or transfers of properties，income from profits and income from other businesses and other than businesses.
　　Article 5 The investor of an individually-owned enterprise shall take the total returns from his production or business operation as the taxable income；the investors of a jointly owned partnership enterprise shall take as taxable income the dividends from total income of the production and/or business operation of the jointly owned enterprise distributed in accordance with the ratios as prescribed in the partnership agreement，and should there be absence of a partnership agreement，the taxable income shall be the average income of each partner of the enterprise from production and business operation.
　　"Returns from production and business operation" as mentioned in the previous paragraph shall cover the income of the enterprise distributed among the partners plus the returns（profits）of the enterprise retained as reserve of the year.
　　Article 6 The income from production and business operation，when computed by the method of account audit，shall be determined in the light of the "Procedure（Trial）for Taxable Amount Assessment of Industrial and Commercial Operators for Individual Income Tax（GSF No. 43 [1997]）。Items listed below however shall be deducted in accordance with these Provisions：
　　1. Norms for deduction of the wage of the investor shall be determined by the taxation authorities of the provinces，autonomous regions and municipalities directly under the State Council in the light of the provisions of the Law of Individual Income Tax regarding the norms for the deduction of wages.
　　2. The wages of the employees of an enterprise shall be deducted before tax payment according to the prescribed norms，to be determined concretely by the taxation authorities of the provinces，autonomous regions and municipalities directly under the State Council in the light of the norms for taxable income of wages.
　　3. The living expenses of the investor and his family shall not be allowed to be deducted from the taxable amount prior to tax payment. When the living expenses of the investor and his family is so mixed up with the expenses in production and business operation that they cannot be separated，the total thereof shall be deemed the living expenses of the investor and his family which shall not be allowed to be deducted from the gross income before tax assessment.
　　4. In case the fixed assets being used jointly in the production and business operation of an enterprise and in the family life of the investor and his family thus are difficult to separate，it shall be up to the taxation authorities to determine the amount and percentage of the property to be deducted prior tax in terms of depreciation in the light of type and scale of the production and business operation and other relevant concrete conditions.
　　5. The funds for the trade union，workers' welfare and education and training shall be deducted within 2%，14% and 1.5% respectively of the total payroll in an enterprise. The trade union operating fees，expenditure for staff welfare and staff training fees incurred by an enterprise could be deducted on an actual basis，with the deduction rate limited respectively to 2%，14% and 1.5% of total amount of salary and wages.
　　6. The expenses on advertising and publicity that incur to an enterprise in its tax year which are kept within 2% of the total annual sales amount（business income）shall be deducted from the taxable amount truthfully；should the percentage be exceeded，the balance above the prescribed percentage shall be deferred for deduction from the taxable amount to future years indefinitely. As to the advertising fees and the promotion fees incurred in each tax year by an enterprise，part of such expenditure，less than 2% of sales（operating）revenue，could be deducted before tax on an actual basis；and the part exceeding the 2% could be deducted in the following tax year.
　　7. The expenses directly on public relation activities of an enterprise in a tax year shall be deducted from the taxable amount if the expenses are kept within the allowance cited below：no more than 5‰of the total net income if the net income from its annual sales（or business operation）is at or below 15 million yuan；or no more than 3‰of the total net income if the annual sales（or business operation）is above 15 million yuan. For the entertainment expenses directly related to the production and business operations of an enterprise could be，on an actual basis，deducted from the taxable amount，with the ceiling amount of deduction no more than 5‰if the net sales（operating）revenue of the year is at or below 15 million yuan；or no more than 3‰if the net sales（operating）revenue of the year is above 15 million yuan.
　　8. Reserve funds of all types drawn in an enterprise shall not be deducted from the taxable amount.
　　Article 7 The taxation authorities shall take the approach of tax assessment for taxation of IIT in one of the following cases：
　　1. When an enterprise which should have set up account books in accordance with State regulations but has failed to do so；
　　2. In case when an enterprise has set up account books but the accounts are poorly kept or seriously lack sufficient cost information，income instruments and/or receipts of expense payments，thus making audit difficult；
　　3. When a taxpayer liable for tax payment fails to report for tax payment within a fixed time limit in the way as provided by the law and continues to fail to report for tax payment in time after the taxation authorities have ordered it to report for tax payment within a newly set deadline.
　　Article 8 The "approach of tax assessment for taxation" as mentioned in Article includes taxation on fixed amounts，the income tax rate based on assessment and other appropriate approaches to taxation.
　　Article 9 By taking the approach of taxation at income tax rate based on assessment，the formula for computation of the taxable amount shall be as follows：
　　Income tax amount = taxable income amount X applicable tax rate
　　Income tax amount = total income X percentage of taxable income，or
　　Income tax amount = total expenses on costs /（1 -applicable tax rate）X percentage of taxable income
　　The percentage of taxable income shall be determined by the norms prescribed in the table below：
　　Table of Ratio of Taxable Income
　　Industry Percentage of taxable income （%）
　　Industry， transportation and communications， commerce 5-20
　　Building industry， land development 7-20
　　Catering and service industry 7-25
　　Entertainment industry 20-40
　　Other industries 10-30
　　If an enterprise has operations in a number of industries，the applicable percentage of taxable income shall be determined on the basis of its principal business operation，disregarding whether its different operations adopt independent accounting.
　　Article 10 Investors accepting the approach of taxation on the basis of assessment shall not be entitled to the preferential policy on IIT.
　　Article 11 Business exchanges between an enterprise and its associated enterprises shall collect and pay prices and charges as normal business exchanges between independent enterprises. In case payments on price and charges between them are not as those between independent enterprises，thus resulting in a decrease of the taxable income amount，the taxation authorities have the power to make proper readjustment thereof.
　　Conditions for determining the status of an "associated enterprise" as mentioned in the previous paragraph and methods of readjusting the price and charges by taxation authorities shall follow the provisions of the "Law of the People's Republic of China on Tax Administration" and the Detailed Rules for the implementation thereof.
　　Article 12 An investor operating two or more enterprises（including in partnership，same in the following paragraphs）shall account the aggregate of the taxable income he has received from all of his enterprises at year end so as to provide the basis for determining an applicable tax rate and the taxable amount.
　　Article 13 An investor operating two or more enterprises shall choose his income from one of the enterprises for making deduction for his personal expenses allowed to be deducted from the taxable income in accordance with the provisions of paragraph 1 of Article 6 of these Provisions.
　　Article 14 The annual loss of an enterprise shall be allowed to be made up for from the income of production or business operation of the following year，and if that is insufficient for the offsetting，the offsetting may continue in the next and next year till the loss is totally made up for，but this can be done in five consecutive years at most.
　　If an investor runs two or more enterprises at the same time，the annual loss of one enterprise shall not be made up for from the income of another enterprise.
　　Article 15 An investor who has paid income tax abroad on his overseas income from production or business operation overseas may have deduction for the income tax he has paid abroad in accordance with the provisions of the Law of the People's Republic of China on Individual Income Tax.
　　Article 16 At the time of liquidation of an enterprise，the investor should settle all his/her tax matters with the local taxation authorities before he/she applies to the administration for industry and commerce for cancellation of his/her registration. His/her income from the liquidation shall be deemed part of the annual income from production or business operation on which he/she shall pay IIT.
　　"Income from liquidation" as mentioned in the previous paragraph refers to the portion above the actual input capital after withholding the expenses，losses，debts and profit retained for the previous accounting year from the sound value of all the assets or properties in the liquidation.
　　Article 17 When an investor makes monthly or quarterly advance for his/her annual payment of IIT，he/she shall make advance payment within seven days after the termination of each month or quarter，and then bring up the balance within three months after the termination of the tax year.
　　Article 18 In the event of a merger，split or termination of an enterprise，the investor shall settle his/her IIT with the local taxation authorities within 60 days after the enterprise ends its production or operation.
　　Article 19 In case an enterprise starts operation in the middle of a tax year or its operation is less than 12 months on account of merger or termination，the actual period of operation of the enterprise shall be deemed a tax year.
　　Article 20 An investor should report to the local taxation authorities where his/her enterprise operates for his/her payment of IIT. For an investor who receives his/her income from his/her partnership enterprise's production or business operation，the partnership enterprise should report to the local taxation authorities where that partnership enterprise is operating for the taxable amount of the individual income of the investor and gives him/her a copy of the IIT declaration form.
　　If an investor runs two or more than two enterprises，he/she should make advance tax payments to the local taxation authorities of the places where his/her enterprises are operating. Final annual settlement of the tax payments shall be done separately in the light of the different situations as follows：
　　1. If all of the enterprises an investor runs are individually owned，he/she should report to the local taxation authorities of the places where the enterprises are operating for annual tax clearance and compute the tax amounts and payments on the basis of the business income of each enterprise at the applicable tax rate to that enterprise on the basis of that enterprise's total business income；
　　2. If among the enterprises run by the investor，one or some of them are partnership enterprises，the investor should report to the taxation authorities of place of his/her residence for tax payment settlement；where his/her place of residence differs from the places of the enterprises，the investor should choose one of the places where he/she has partners in an enterprise to settle annual tax payment，which cannot be changed within the coming five years. If a necessity of change arises after the five-year period，approval for the change should be obtained from the original tax authorities in charge of the tax payment settlement.
　　Article 21 When paying IIT in advance，the investor should submit to the local taxation authorities the "Form of Declaration of Individual Income Tax on Individual Investors of Individually Owned and Jointly Owned Enterprises".
　　An investor should within 30 days after the termination of the tax year submit the "Form of Declaration of Individual Income Tax on Individual Investors of Individually Owned and Jointly Owned Enterprises" plus statements of annual settlements and tax invoices.
　　If an investor runs two or more than two enterprises and reports to the local taxation authorities of the place where he/she sets up his/her actual management office，he/she should attach the taxable income amounts of the other enterprises for annual payment of IIT；if there are partnership enterprises among the enterprises，he/she should submit the "Summary Declaration of Individual Income Tax on Individual Investors of Jointly Owned Enterprises" based on the total income of all the enterprises reported for tax payment and meanwhile submit the annual final settlement statements and the receipts of the IIT he/she has paid in the same year.
　　Article 22 The local taxation authorities are responsible for the administration of the collection of the IIT on investors.
　　Article 23 Other matters related to the administration of the IIT on investors shall be implemented in accordance with the relevant provisions of the "Law of the People's Republic of China on Taxation Administration" and the "Law of the People's Republic of China on Individual Income Tax".
　　Article 24 The State Administration of Taxation shall be responsible for the interpretation of these Provisions. The local tax departments of the provinces，autonomous regions and municipalities directly under the State Council shall formulate detailed rules for the implementation thereof in accordance with these Provisions in the light of the local conditions.
　　Article 25 These Provisions shall be effective for implementation from January 1，2000.