Companies should withhold individual income tax when paying foreign staff salaries

Case details:

A company intends to hire a foreign employee who believes that a foreigner with high salaries as he shall declare and pay taxes on his wages and salaries personally and the company shall not withhold any taxes. Correspondingly, the company believes that the company doesn’t undertake the obligation of withholding any individual income taxes if the employee declare and pay taxes by himself.

Analysis:

According to ‘Individual Income Tax Law of the People's Republic of China’ and its implementation regulations and ‘Interim Measures of Withholding and Remitting Individual Income Tax’, the income earner shall be the taxpayer and the paying unit shall be the withholding agent. The tax agent shall withhold taxes according to tax rules when paying the employee tax payable. As long as the individual earns income from a domestic unit, the domestic unit that pays the individual such income shall fulfill the obligation of withholding individual income taxes no matter such individual is a Chinese resident or a foreigner. Besides, this is clearly stipulated in the ‘Circular of State Administration of Taxation on Printing and Issuing the Regulations on Some Issues Concerning the Levy of Individual Income Tax ’.

Therefore, no matter whether the foreign employee declare and pay taxes personally or not, the company paying such foreign employee the salaries and wages shall not forget to withhold and remit the individual income taxes otherwise the company will be at the risk of being imposed an administrative penalty. 

If a real estate development enterprise makes investment in a joint operation with its own land-use rights, shall the enterprise be imposed on the Land Value-added Tax?

Question: If a real estate development enterprise doesn’t build anything yet after it has gained land-

use rights and the enterprise now intends to invest a hotel management company with the said land-

use rights, shall the enterprise be imposed on the Land Value-added Tax?

Answer: According to article 5 of ‘Circular of the Ministry of Finance and the State Administration of Taxation on Land Value-

added Taxes (caishui [2006] No.21)’, ‘As to any investment or association by land-

use rights (real estate) as payment for the purchase of shares, where the investment target enterprise engages in the real estate development business or where any other real estate development enterprise makes investment or conducts association with the commercial residential buildings built by the enterprise, it shall not be governed by Article 1 of the Circular of the Ministry of Finance and the State Administration of Taxation on the Provisions on Some Specific Issues regarding Land Value-added Taxes (No. 048 [1995] of the Ministry of Finance) on the interim exemption of Land Value-added Taxes.’

From the point of view of semantic interpretation, the precondition of levying Land Value-added Tax on a real estate development enterprise which makes investment with its own land or real estate is ‘making investment with the commercial residential buildings built by itself’ or ‘the company involved in investment engaging in real estate development’ rather than ‘making investment with its own land or real estate’. 

In conclusion, lawyer believes that if a real estate development company makes investment or participates in a joint operation with its own land-use rights, the land of which has not been exploited yet or built upon any commercial residential buildings yet, and the investment target enterprise doesn’t engage in the real estate development business, the real estate development company can be subject to article 1 of caishuizi [1995] No.048 and temporarily be exempt from the Land Value-added Tax. Thus, if a real estate company invests a hotel management company while the capital contribution is its own land-use rights, the preferential policy of interim exemption of Land Value-added Tax should apply to such company.