TAX RATES AND ALLOWANCES
The following tax rates and allowances are to be used in answering the questions.
Individual income tax
Entrepreneurs who receive production or operations income derived from private industrial or commercial operations
Allowance per annum RMB42,000
Monthly personal allowance for a China local RMB3,500
Additional allowance for expatriate employees RMB1,300
Allowance each time for individual service income, income from manuscripts, royalties and rental of property
RMB4,000 and below RMB800
Over RMB4,000 20%
Income from:
Manuscripts, royalties, interest, dividends, rental of property,
transfer of property, incidental income and other income 20%
Donations of individuals
Limited to: 30% of the taxable income; or
100% if the donation is made to certain funds approved by the government
Note: The above rates are based on the pilot rules published by 30 September 2017. The new rules issued from 1 October 2017 onwards are not examinable in the 2018 exams.
Judy Chen received RMB200 cash (net of tax) in a lottery from Supermarket X and received RMB450 WeChat Red-pocket money from her friends.
What is the amount of individual income tax (IIT) which should have been withheld by Supermarket X on the cash lottery, and, how much IIT is payable by Judy on the WeChat Red-pocket money?
Lottery WeChat Red-pocket
(RMB200 cash) (RMB450)
Cash lottery IIT RMB50 (200 ÷ 80% x 20%); WeChat Red-pocket money IIT RMB0.
Big-Mart Store (BMS) offered a promotion whereby each walk-in customer received a packet of tissue paper free of charge. The cost and usual selling price of each packet is RMB0·5 and RMB1 respectively. In February 2018, BMS gave 10,000 packets of tissue paper to walk-in customers.
What are the deemed sales, and deemed promotional expenses of BMS for enterprise income tax (EIT) purposes, in February 2018?
You should ignore value added tax (VAT) and surtaxes.
Deemed sales Deemed promotional expenses
Deemed sales and deemed promotion expenses are both RMB10,000.
SS Express (SSE) is a logistics company. It acquired warehouse premises in March 2018 for RMB5,000,000. The value added tax (VAT) special invoice shows input VAT of RMB550,000. SSE also purchased forklifts for which the VAT special invoice showed input VAT of RMB170,000 in March 2018. Output VAT for March 2018 amounted to RMB10,000.
What is the value added tax (VAT) position of SSE for March 2018?
Input VAT creditable = 550,000 x 60% + 170,000 = 500,000
Output VAT = 10,000
Input VAT carried forward = RMB490,000
Weke Ltd acquired land use rights for RMB100 million from the local government on 1 January 2000 and from this date, the land was idle. Weke Ltd incurred bank loan interest of RMB20 million relating to the acquisition of this land. Unfortunately, the company declared bankruptcy and the land use rights were sold at an auction on 31 December 2017 for RMB300 million excluding value added tax (VAT). The valuation of the land use rights on that date was RMB250 million. The following taxes were paid on auction:
VAT RMB15 million
Surtaxes on VAT RMB1·8 million
What is the amount of land appreciation tax, payable by Weke Ltd, on the auction of the land use rights?
Deductible for LAT = 100 + 1·8 million
Land appreciation value = 300 – 101·8 = 198·2 million
LAT = 198·2 x 50% – 101·8 x 15% = 83·83 million
What is the statute of limitation on the collection of taxes underpaid concerning tax evasion and transfer pricing adjustments respectively?
Tax evasion Transfer pricing
Win Ltd imports smart phones for resale. In March 2018, it imported 1,000 smart phones and received the following pro-forma invoice:
RMB151,400 ((1,500,000 + 10,000 + 4,000) x 10%)
Smell Fast Food (SFF) is a small-scale taxpayer for value added tax (VAT) purposes. SFF pays VAT on a quarterly basis. In the first quarter of 2018, SFF generated the following amounts of sales of fast food:
RMB
January 2018 28,000
February 2018 35,000
March 2018 22,000
What is the amount of value added tax (VAT) payable by SFF in the first quarter of 2018?
RMB0 (28,000 + 35,000 + 22,000 = 85,000 which is less than 90,000, which is VAT exempt)
Bur Ltd qualified as a small-profit enterprise in 2017. Its enterprise income tax (EIT) status is as follows:
RMB
Tax loss brought forward from 2016 38,000
Taxation profit for 2017 220,000
What is Bur Ltd’s enterprise income tax (EIT) payable for 2017?
Taxable profit = 220,000 – 38,000 = 182,000
EIT = 182,000 × 10%
Which of the following are treated as taxable income for the purposes of individual income tax?
(1) Cash of RMB100,000 from grandfather’s estate
(2) Insurance compensation of RMB25,000 from a traffic accident
(3) Moon-cake coupon worth RMB100 received from an employer
(4) Company car, valued at RMB50,000, and transferred to an employee free of charge
Tee Ltd is an export trading company. It purchased toys in December 2017 for RMB500,000, excluding value added tax (VAT). The VAT special invoice shows input VAT of RMB85,000. In January 2018, it exported 50% of the toys for RMB320,000. The export VAT refund rate for toys is 15%.
What is the export value added tax (VAT) refund due to Tee Ltd?
RMB37,500 (85,000 × 50% × 15% ÷ 17%)
Arthur Ltd is a monthly taxpayer for value added tax (VAT) and the withholding agent in respect of individual income tax (IIT) for its employees.
What is Arthur Ltd’s monthly tax filing deadlines for value added tax (VAT) and individual income tax (IIT) respectively?
VAT monthly IIT monthly
filing deadline filing deadline
(days after the (days after the
month end) month end)
Mr Wu and Ms Yu are partners in a partnership business providing consultancy services sharing profits equally. In 2017, the partnership generated profit of RMB500,000 (assuming that there is no tax adjustment). They agreed Mr Wu would not draw any profits from the partnership in 2017.
What is the amount of individual income tax (IIT) payable by Mr Wu in 2017?
RMB58,050 ((500,000 ÷ 2 – 42,000) ×35% – 14,750)
Rust Ltd lost some inventory during a snowstorm in January 2018. The inventory cost RMB200,000, with associated input value added tax (VAT) credited in December 2017 of RMB34,000. The normal selling price for these goods is RMB300,000. The insurance company agreed to compensate RMB120,000 to the company for the lost inventory. Where relevant, all amounts are exclusive of VAT.
What is the amount of irrecoverable input value added tax (VAT) on the inventory lost in January 2018?
RMB0
[Tutorial note: Not abnormal loss.]
Tett Ltd is a qualified software enterprise set up in Chengdu. Hence, it also enjoys the tax incentive of the Central and Western Region. It started benefiting from the enterprise income tax (EIT) incentive on software enterprise from 2015. Tett Ltd’s taxable profit in 2017 is RMB1,200,000.
What is the minimum amount of enterprise income tax (EIT) payable by Tett Ltd?
RMB150,000 (1,200,000 × 12·5%)
Tutorial note: Can only enjoy one tax incentive and the EIT rate as a software enterprise is 12·5%.
FE Ltd is a UK engineering company. In February 2018, it entered into a service agreement with a Shanghai customer. The agreement specifies the service is to be completed by December 2018. FE Ltd sent its staff to China to provide services and created a permanent establishment in China.
When should FE Ltd register with the China tax bureau?