April 26, 2012

For the purpose of addressing the issues on double taxation on the individuals working among the Mainland China, Hong Kong and Macao and in accordance with the arrangements the Mainland signed with Hong Kong SAR and Macao SAR on the avoidance of double taxation and the prevention of fiscal evasion (hereafter referred to as the "Arrangements") with respect to taxes on income (the provisions in the arrangement signed with Macao SAR are provisions on dependent individuals' labor, hereafter referred to as the "Provisions on Employment Income", collectively), upon the consultations with the relevant tax authorities, the issues concerning individual income tax of Hong Kong and Macao tax residents employed in Hong Kong or Macao or both in Mainland China and Hong Kong or Macao as involved in the Provisions on the Income from Employment in the Arrangements are announced as follows:

I. Implementation of the Relevant Provisions and Tax Computation Approaches of the Provisions on Employment Income in the Arrangements

1. As specified in the first paragraph of the article "Income from Employment", the income from employment of a Hong Kong or Macao resident obtained for his relevant services provided during his stay in Mainland China shall be imposed with individual income tax in the Mainland only. The formula shall be:

Tax payable=(Taxable income of onshore and offshore wages× Applicable tax rate- Quick calculation deduction) ×Number of days actually stayed onshore ?Number of calendar days of the current period

2. As specified in the second paragraph of the article "Income from Employment", for the income from employment of Hong Kong or Macao residents obtained for their relevant services provided in Mainland China, the part satisfying certain conditions may be exempted from tax in Mainland China. The formula for computing the taxable part of income in Mainland shall be:

Tax payable=(Taxable income of onshore and offshore wages× Applicable tax rate- Quick calculation deduction) × (Number of days actually stayed onshore ?Number of calendar days of the current period) × (Wages paid onshore of the current period ?Total wages paid onshore and offshore of the current period)

II. Interpretation of the Expressions Relating to Formulas

1. "Current period" refers to the period of the taxable income of the wages computed according to the tax regulations of Mainland China.
2. "Taxable income of onshore and offshore wages" refers to the taxable income computed according to the tax regulations of Mainland China from the income of wages of the current period
3. "Applicable tax rate" and "Quick calculation deduction" shall be determined according to the tax regulations of Mainland China.
4. "Wages paid onshore of the current period" refers to a part of the total wages paid onshore and offshore of the current period, and shall be paid or borne by domestic residents or permanent representative offices.
5. "Total wages paid onshore and offshore of the current period" refers to the total wages of the current period, including all the onshore and offshore income before deduction of any expense.
6. "Number of days actually stayed onshore" refers to the number of days when a Hong Kong or Macao resident actually stayed in Mainland China during the current period, provided that, the day of entry, exit, entry and exit, or entries and exits shall be regarded as a half day of actual stay.
7. "Number of calendar days of the current period" refers to the total number of calendar days of the current period, and any date not actually stayed in Mainland is not deductable.

III. One-lump Income of Different Taxable Periods
Different forms of remuneration such as bonus, salary raise and dividends of different taxable periods paid to a Hong Kong or Macao resident in one lump (hereafter referred to as the "Bonus", collectively, excluding the bonus already paid during each taxable period) shall be subjected to individual income tax in accordance with the formula specified in paragraph 1 or 2 of Article 1 of this Announcement as the case may be, given the taxable period determined according to the tax regulations of Mainland China is regarded as the Period as specified in the Arrangements. For the application of the aforesaid formulas in this Announcement, the "Number of days actually stayed onshore" refers to the number of days actually stayed during the period of obtaining such Bonus; and the "Number of calendar days of the current period" refers to the total number of calendar days during the period of obtaining such Bonus.

IV. Record-filing and Reporting
At each time of enjoying the relevant preferential treatment of the Arrangements as per this Announcement, Hong Kong and Macao residents shall file for record with competent tax authorities in accordance with the relevant provisions in the Administrative Measures on Tax Convention Treatments for Non-Residents (Trial) (Guo Shui Fa `2009` No. 124), and shall provide the relevant documents in accordance with Article 5 of the Circular of the State Administration of Taxation on Several Specific Issues Concerning the Calculation of Individual Income Tax Payable by Individuals Without a Residence Within the Territory of China (Guo Shui Han `1995` No. 125).

V. Effective Date
This Announcement is applicable to the income from employment obtained on and after June 1, 2012.
The following articles of the documents shall not be performed when Hong Kong and Macao Residents compute individual income tax in accordance with the aforesaid provisions, provided that, the effectiveness of such following articles shall not be impaired in dealing with tax issues not relevant to the provisions on the income from employment as in the Arrangements:
1. Articles 2, 3 and 6 of the Circular of the State Administration of Taxation on Issues Concerning the Income Tax Liability on the Remunerations Received by Individuals Without Residence Within the Territory of China (Guo Shui Fa `1994` No. 148);
2. Articles 1 and 2 of the Circular of the State Administration of Taxation on Several Specific Issues Concerning the Calculationof Individual Income Tax Payable by Individuals Without a Residence Within the Territory of China (Guo Shui Han Fa `1995` No. 125);
3. Article 1 of the Written Reply of the State Administration of Taxation to Issues Concerning Tax Obligation of Foreign Employees of Mitsui Co., Ltd in the Dalian Office Upon Obtaining Bonuses for Months (Guo Shui Han Fa `1997` No. 546); and
4. Article 2 and Paragraphs 1 and 2 of Article 3 of the Circular of the State Administration of Taxation on Several Issues Concerning the Execution of Tax Agreements and Individual Income Tax Law on Individuals Without Residence Within the Territory of China (Guo Shui Fa `2004` No. 97).