In the actual operation of an enterprise, where it is common for the enterprise to seek the services of a natural person, where the remuneration paid does not exceed the point of entry established by the policy relating to vat, the paying enterprise may deduct the payment certificate as a pre-tax deduction. In the case of those who exceed the vat threshold, natural persons are required to obtain a ticket from the tax authority to the paying enterprise as a pre-tax deduction. What are the taxes and fees involved in invoicing labour costs by natural persons
1. Value added tax
As of 31 december 2027, the rate of collection of vat from natural persons for the provision of vat was reduced by 3 per cent to 1 per cent, in accordance with the circular of the general directorate of taxation of the ministry of finance on vat relief for small-scale taxpayers (official gazette no. 19 of 2023)。
According to the circular of the ministry of finance, the state tax administration on the comprehensive deprivation of business tax to the vat pilot (customs 2016) no. 36) exempts individuals from vat up to $500 per sales day。
2. Urban maintenance tax
According to the law of the people's republic of china on urban maintenance and construction tax, when a natural person issues an invoice for labour, the city maintenance tax is based on the value added tax actually paid, which is 7 per cent in urban areas; 5 per cent in county towns and towns where the taxpayer is located; and 1 per cent in towns, counties or towns where the taxpayer is not located。
In accordance with the declaration on further support to small microenterprises and individual businessors in the development of tax and fees policy (official gazette no. 12 of 2023 of the general tax administration department of the ministry of finance), a reduction of up to 50 per cent is granted。
3. Education surcharge, local education surcharge
Invoices issued by natural persons for labour related to education fees plus local education are based on actual value added tax (vat) paid, and the monthly sales tax is not more than $100,000 per month under the terms of the circular on expansion of exempts from government funds (custom 12) payers are exempt from education fees plus and local education surcharges。
According to the proclamation on further support to microenterprises and individual businessors in the development of tax and fees policies (official gazette no. 12 of 2023) of the ministry of finance, sales of over $100,000 per month can be reduced by up to 50 per cent together with the urban maintenance and construction tax。
4. Personal income tax
If a natural person taxpayer obtains a surrogate ticket for remuneration for labour, the personal income tax is no longer levied by the tax office for the purpose of obtaining a credit. Their personal income tax is withheld by the paying party (the person who is liable for the withholding) in accordance with the provisions of the bulletin issued by the general state tax administration (official gazette no. 61 of 2018)。
When a resident makes an annual consolidated contribution, the amount of income derived from labour remuneration, remuneration and royalties shall be calculated in accordance with the law and incorporated into the annual consolidated income, which shall be taxable and paid in full。
Note that:
1. If, in accordance with article 69 of the law of the people's republic of china on the regulation of the collection of taxes, a person who withholds taxes from him or her, the tax authorities shall collect the tax from him or her, and a fine of more than 50 per cent and less than three times that amount shall be withheld from him or her。
2. In the actual business, an individual is generally paid a post-tax amount, which is payable at the time of the billing。
