TAX RATES AND ALLOWANCES
The following tax rates and allowances are to be used in answering the questions.
Enterprise income tax
Deduction limits on certain expenses
Individual income tax
Entrepreneurs who receive production or operations income derived from private industrial or commercial operations
Individual service income
Allowance each time for individual service income, income from manuscripts, royalties and rental of property
Donations of individuals
Limited to: 30% of the taxable income; or
100% if the donation is made to certain funds approved by the government
Value added tax (VAT)
VAT pilot programme
Note: The above rates are based on the pilot rules published by 30 September 2014. The new rules effective from 1 October 2014 are not examinable in the 2015 exams.
Business tax
Land appreciation tax
Which government authorities promulgated the Enterprise Income Tax Law and the Consumption Tax Provisional Regulations?
The Standard Committee of the National People’s Congress and the State Council.
Which of the following transactions is NOT subject to land appreciation tax (LAT)?
Government is not subject to land appreciation tax.
A yacht factory sold a yacht to an individual customer and received a total amount of RMB400,000. The consumption tax rate for yachts is 10%.
What are the amounts to be recorded in the factory’s accounts for sales and consumption tax respectively?
RMB341,880 and RMB34,188
Value added tax (400,000 ÷ 1·17); consumption tax (341,880 x 10%).
The sales manager of a supermarket has proposed a marketing promotion of selling a pack of shampoo with a free bottle of hair-conditioner. This is termed as a ‘buy-one-get-one-free’ offer. The retail price (i.e. inclusive of value added tax (VAT)) of the items is as below:
RMB14,530 (50 x 2,000 ÷ 1·17 x 17%)
This is a bundled sale and no deemed sales for hair conditioner.
Mr Lee has licensed his new invention to a China company for a royalty of RMB200,000 per annum. Mr Lee is a not a China tax resident and he has not travelled to China in 2014.
What is the amount of individual income tax (IIT) payable by Mr Lee in 2014?
RMB32,000 (200,000 x (1 – 20%) x 20%)
KINO Ltd is a company set up in China, which is subject to enterprise income tax (EIT) of 25%. KINO Ltd has a wholly (100%) owned subsidiary, Company A, set up in Country X.
In 2014, Company A had a profit of USD200,000 and paid enterprise income tax in Country X at the rate of 15% (USD30,000). Company A declared a dividend of USD170,000 and paid this to KINO Ltd after deduction of withholding income tax of 10% (USD17,000).
What is the additional enterprise income tax (EIT) which KINO Ltd will pay on the dividend income received from its subsidiary, Company A?
USD3,000 (200,000 x 25% – 30,000 – 17,000)
Tutorial note: Foreign tax credit is allowed for the enterprise income tax paid by a non-resident subsidiary and this is limited to three layers of non-resident subsidiary
CA Ltd is a foreign-invested enterprise set up in Shanghai, China. CA Ltd declared a dividend of RMB500,000 to its investor, Hoo Ltd. Hoo Ltd is set up in the Cayman Islands, which does not have any tax treaty with China.
What are the amounts of enterprise income tax (EIT) and business tax respectively, which CA Ltd should withhold before remitting the dividend to Hoo Ltd?
RMB50,000 and RMB0
Enterprise income tax (500,000 x 10%); the dividend is not subject to business tax.
A computer trading company took ten computers from its warehouse.
Which of the following uses of the computers will be classed as a deemed sale for BOTH value added tax (VAT) and enterprise income tax (EIT)?
To be given as souvenirs to the company’s customers.
Xuno Ltd was set up in Shenzhen in 2007 and is subject to an enterprise income tax (EIT) rate of 25%. Xuno Ltd’s taxable profits (losses) since its inception are summarised below:
RMB60,000 ((510,000 – 150,000 – 120,000) x 25%)
Which of the following imports to China from overseas can be exempt or temporarily exempt from China customs duty?
(1) The importation of goods into a China free trade zone
(2) The importation of equipment under an operating lease
(3) The importation of raw materials under a processing trade
(4) The importation of raw materials under a general trade
The importation of goods into a China free trade zone; and of raw materials under a processing trade.
Carti Ltd is a Beijing company which trades in light bulbs. In December 2014, Carti Ltd purchased light bulbs for RMB100,000 (excluding value added tax (VAT)) and a VAT special invoice was obtained. Carti Ltd exported the light bulbs to Europe for RMB150,000. The export VAT refund rate for light bulbs is 16%.
What is the amount of the value added tax (VAT) refund which Carti Ltd can receive?
RMB16,000 (100,000 x 16%)
Ms Wang won a smart phone with a market value of RMB3,000 in a lucky draw at a supermarket. The supermarket agreed to bear all of the taxes for the winners of the lucky draw.
What is the individual income tax (IIT) payable on Ms Wang’s lucky draw prize and who will be responsible for paying it to the tax bureau?
Amount of IIT (RMB) Tax payable/withheld by
RMB750 (3,000 ÷ (1 – 20%) x 20%); IIT is withheld and paid to the tax bureau by the supermarket.
SHL Ltd, a property developer, developed a shopping mall. SHL Ltd acquired the land use right for RMB10 million and incurred construction costs of RMB12 million. The shopping mall was sold for RMB32 million.
What is the amount of business tax payable on the sale of the shopping mall?
RMB1·6 million (32 million x 5%)
The accountant of Zeta Ltd altered the amount charged on an invoice for purchases from RMB50 to RMB50,000 so as to increase the deduction for enterprise income tax (EIT).
What is the type of offence Zeta Ltd has committed under the Tax Collection and Administrative Law?
Alpha Trading Ltd (Alpha) is a value added tax (VAT) general taxpayer. On 1 January 2014, Alpha lent RMB200,000 to Beta Ltd at an interest rate of 10% per annum.
What is the type and amount of turnover tax which Alpha Trading Ltd will pay on the interest income received for the year 2014?
Business tax of RMB1,000 (200,000 x 10% x 5%)
A VAT general taxpayer is still subject to business tax on interest income.