案例分析题Joe is the managing director and 100% shareholder of OK-Joe Ltd. He has always withdrawn the entire profits of the company as directors remuneration, but given a recent increase in profitability he wants to know whether this basis of extracting the profits is beneficial. For the year ended 5 April 2016, OK-Joe Ltds taxable total profits, before taking account of directors remuneration, are 65,000. After allowing for employers class 1 national insurance contributions (NIC) of 5,141, Joes gross directors remuneration is 59,859. The figure for employers NIC of 5,141 is after deducting the 2,000 employment allowance. Required: Calculate the overall saving of tax and NIC for the year ended 5 April 2016 if Joe had instead paid himself gross directors remuneration of 8,000 and net dividends of 45,600. Notes: 1. You are expected to calculate the income tax payable by Joe, the class 1 NIC payable by both Joe and OK-Joe Ltd, and the corporation tax liability of OK-Joe Ltd for the year ended 5 April 2016. 2. You should assume that the rate of corporation tax remains unchanged.

案例分析题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. Exchange rate USD1 = RMB6​​​​​​​

案例分析题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 VAT pilot programme​​​​​​​ Note: The above rates are based on the pilot rules published by 30 September 2016. The new rules issued from 1 October 2016 onwards are not examinable in the 2017 exams. Exchange rate USD1 = RMB6

案例分析题(b)Const Ltd is a construction company in Xiamen

案例分析题(a) KT Ltd manufactures and sells gadgets via the internet. KT Ltd is a value added tax (VAT) general taxpayer. It carried out the following transactions in March 2018. (1) Purchased raw materials for RMB600,000, excluding VAT of RMB102,000, as shown on the VAT special invoice. 70% of the materials were used in production and 30% remained in stock in the warehouse. (2) Paid a transportation fee of RMB10,000, excluding VAT of RMB1,100, as shown on the VAT special invoice. (3) Paid rent to the landlord of RMB25,000, excluding VAT of RMB1,250 as shown on the VAT ordinary invoice issued by the landlord. (4) Purchased canned food and soft drinks for the staff canteen for RMB8,000, excluding VAT of RMB1,360, as shown on the VAT special invoice. (5) Purchased new machinery for RMB800,000, excluding VAT of RMB136,000, as shown on the VAT special invoice. It is expected the machinery can be used for a period of five years. (6) The normal price of gadgets is RMB44 for each piece. KT Ltd offered a promotion campaign where customers can receive a coupon worth RMB5 which can be used against the purchase of each gadget. The coupon cannot be exchanged for cash. In addition, customers who register as KT Club members can receive one gadget free of charge. The above prices are VAT inclusive. The following table shows the number of gadgets sold to or received free of charge by customers in March 2018: No. of gadgets Sold to customers at normal selling price 20,000 Sold to customers with coupons 8,000 Received free of charge by new KT Club members 2,000 (7) Sold old machinery and received RMB2,000. No invoice was issued. The machinery was acquired in November 2015 for RMB40,000, with input VAT of RMB6,800 credited in the month of purchase. Note: You should assume the above are the only transactions with VAT implications. Required: (i) Calculate the input value added tax (VAT) credit on items (1) to (5) above. State no VAT credit for items which are not eligible for input tax credit. (ii) Calculate the output VAT on items (6) and (7) above. (b) Explain the differences in VAT treatment between exempt and zero rated supplies.

案例分析题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 Allowance per annum RMB42,000​​​​​​​ Employment income Monthly personal allowance for a China local RMB3,500 Additional allowance for expatriate employees RMB1,300 Individual service income 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 VAT pilot programme Note: The above rates are based on the pilot rules published by 30 September 2015. The new rules issued from 1 October 2015 onwards are not examinable in the 2016 exams. Exchange rat USD1 = RMB​​​​​​​

案例分析题Lambda Ltd was set up in Guangzhou 12 years ago

案例分析题(c) Nancy received a bill from a karaoke in Guangzhou as follows: Required: Calculate the business tax (BT) payable by the karaoke in respect of the bill received by Nancy. Note: In Guangzhou, the business tax rate for the entertainment industry is 15% and for the food and beverages industry is 5%.

案例分析题Hit Ltd, a company set up in Suzhou in 2008

案例分析题Moon Ltds accounting profit before tax for the year 2017 is RMB620,000 and its turnover is RMB12,300,000. Except where stated otherwise, the following items have been included when computing the accounting profit before tax: (1) Entertainment expenses of RMB120,000 incurred in 2017. (2) Marketing and promotion expenses of RMB1,000,000 incurred in 2017. Excess marketing expenses brought forward from 2016, and not deducted in arriving at the accounting profit for the year 2017, are RMB350,000. (3) Research and development (RD) expenses of RMB160,000. Moon Ltd qualified as a small-medium sized technology enterprise and can enjoy the additional tax incentive on RD expenses. (4) Handicapped employees salaries of RMB200,000. (5) Qualified work safety equipment at a cost of RMB150,000. (6) A fine of RMB17,800 issued by the trademark bureau for infringement of a trademark. (7) Staff welfare expenses of RMB461,000. Total salaries incurred were RMB4,000,000. (8) The cost of lost inventory of RMB450,000, due to the warehouse being destroyed in a fire during the year, and insurance compensation received of RMB430,000. (9) A special provision for doubtful debts of RMB121,000. (10) A bad debt written off of RMB32,000 as the debtor declared bankruptcy. (11) A specific purpose government subsidy received of RMB350,000 and related costs incurred of RMB310,000. (12) A general purpose government subsidy received of RMB428,000. (13) An amount owed by Moon Ltd of RMB4,000 written off to income as the creditor ceased trading. (14) Interest income on treasury bonds of RMB8,000. (15) Bank interest income of RMB16,500. (16) A value added tax (VAT) refund on export of goods for RMB768,000. (17) Dividend income from a Vietnam subsidiary of RMB90,000 (gross dividend of RMB100,000, Vietnam tax paid RMB10,000). (18) Dividend income from a China subsidiary of RMB30,000 (profit before tax of the China subsidiary was RMB40,000 and enterprise income tax (EIT) paid of RMB10,000). (19) Profit on the sale of A-shares of RMB60,500. (20) A donation paid to the China Red Cross for RMB100,000. Required: Calculate the enterprise income tax (EIT) payable by Moon Ltd for the year 2017, assuming that Moon Ltd has made all relevant applications and reports to the tax authorities. Notes: 1. You should start your computation with the profit before tax figure of RMB620,000 and list all of the items (1) to (20) as referred to in the question, identifying any item which does not require adjustment for tax purposes by the use of zero (0). 2. You are not required to make adjustments for any of the above items for accounting purposes.

案例分析题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 2016. The new rules issued from 1 October 2016 onwards are not examinable in the 2017 exams.​​​​​​​ Exchange rate USD1 = RMB 6​​​​​​​

案例分析题(a) Wonder Ltd is the subsidiary of a group with its parent company listed on the New York Stock Exchange. The human resources manager is not sure how to calculate the individual income tax (IIT) liability for each of the following persons: (1) Mr Wang is an independent non-executive director who received a directors fee of RMB40,000 in January 2018. He donated RMB1,800 of this to the China Red Cross. (2) Ms Xie is the managing director and general manager of Wonder Ltd. She received salary of RMB80,000 and a directors fee of RMB50,000 in January 2018. (3) Mr Yao, the head of the marketing department, received a salary of RMB70,000 in January 2018 and an annual bonus of RMB1,000,000 due to his excellent work performance. (4) Ms Zhang is the chief financial officer who joined the company in 2015. She was granted 10,000 share options in the company on 2 January 2018 when the market price was USD20 per share. The share option agreement allows Ms Zhang to exercise these options at USD1 per share. She exercised 3,000 share options on 28 January 2018 when the market price was USD19 per share. She sold 2,000 shares on 31 January 2018 when the market price was USD28 per share. Required: Calculate the individual income tax (IIT) liability for each of the above persons. Indicate by the use of zero (0) any transaction which is not taxable or tax exempt. Note: Ignore value added tax (VAT) and surtaxes on VAT (b) Ms Ma is a UK citizen. She started working in Beijing in January 2017. Her payslip for the month of December 2017 showed the following items: RMB (1) Monthly salary 90,000 (2) Rental allowance in cash 10,000 (3) Reimbursement of air-tickets on business trips 6,000 (4) Reimbursement of air-tickets on the third home leave in 2017 4,100 (5) Reimbursement of costs for Ms Ma to learn Putonghua in China 5,500 (6) Reimbursement of piano tuition fees in China for Ms Mas children 2,400 (7) Laundry allowance on reimbursement basis 480 (8) Reimbursement of car rental for private use 6,700 (9) Employers contribution on social security 5,800 (10) Employees contributions on social security 3,200 Required: Calculate the individual income tax (IIT) payable by Ms Ma on the above items (1) to (10) for December 2017. Indicate by the use of zero (0) any item which is tax exempt or not taxable.

案例分析题(b) Jack has set up an e-shop selling goods via an internet platform

案例分析题Make-it Ltd was set up in March 2014 and is a value added tax (VAT) general taxpayer. Details of Make-It Ltds purchases from its inception but before the commencement of production are: In August 2014, Make-It Ltd commenced production of two finished products in the same workshop with the same equipment and materials: Taso, which is subject to VAT, and Exo, which is VAT exempt. Details of Make-It Ltds transactions for the months of August to December 2014 are: All amounts are stated exclusive of VAT and VAT special invoices/or business tax invoices were obtained. Required:

案例分析题(a) Phi Ltd is a company set up in Guangzhou

案例分析题Sware Ltd is a software company set up in the Xinjiang Autonomous Region. Sware Ltds enterprise income tax (EIT) rate is 25%. The companys accountant has prepared the following statement of profit or loss for the year end 31 December 2014. Notes: (1) Customers who settle their bills within 30 days receive an early payment discount of 2%. Discounts totalling RMB55,000 were deducted directly from sales. (2) Staff welfare is calculated and provided for in the accounts at 14% of the wages and salaries paid of RMB8,240,000. The actual amount of staff welfare expenses incurred was RMB1,026,350. (3) Entertainment expenses incurred in the year 2014 were as charged in the profit or loss account, i.e. RMB967,000. Entertainment expenses incurred in 2013 in excess of the deduction threshold were RMB68,000. (4) The bad debt related to a debtor who went bankrupt in 2013. The accountant has submitted a report to the tax bureau in relation to this bad debt. (5) The specific provision for doubtful debts relates to an amount which was difficult to recover. The accountant has submitted a report to the tax bureau in relation to this specific provision. (6) These research and development costs qualified for an additional deduction. (7) The compensation was due to the late delivery of software to the customers. (8) Sware Ltd was penalised by the State Administration for Industry and Commerce because of misstatements on its website. (9) Project Pibeta relates to the piloting of software encouraged by the government. The project was started in 2013 and is expected to be completed in 2016. The project is subsidised by the government (see (18) below). (10) A fire destroyed a warehouse with a net book value of RMB2,500,000. Sware Ltd received insurance compensation of RMB2,284,000. The accountant has submitted a report to the tax bureau in relation to this loss. (11) Sware Ltd declared an interim dividend of RMB5,000,000 in 2014. Individual income tax was withheld from this interim dividend before distribution to the companys shareholders. (12) A donation receipt was obtained for the donation to China Red-Cross. (13) A donation receipt was obtained for the donation to the school. (14) Sware Ltd acquired a new subsidiary in 2014 and wrote off the goodwill incurred on this acquisition. (15) Sware Ltd lent some of its surplus funds to its Shanghai subsidiary at an interest rate of 36% per annum. The market interest rate was 8% per annum. (16) Sware Ltd has invested some of its surplus funds in the capital market. The profit on the sale of government bonds included interest of RMB15,000. (17) The A-shares were acquired in 2012. (18) The government granted Sware Ltd a specific financial subsidy to cover all of the expenditure on Project Pibeta. Required:

案例分析题(a) Chris and Wendy graduated from high school in 2012 and set up a hair-dressing shop in the form of a limited company, Hair Ltd

案例分析题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. Exchange rate USD1 = RMB6​​​​​​​

案例分析题(a) Mr Xu, a domestic Chinese, is a designer

案例分析题(b) State, giving reasons, whether the following persons will be subject to individual income tax in China on their worldwide income in 2014: