Personal deductions from employment income
When calculating taxable income from employment income, IIT law allows a personal standard deduction (non-refundable and no carryback/forward provisions). As of 1 September 2011, the amount of monthly standard deduction is CNY 3,500. Foreign individuals (including residents of Hong Kong, Macao, and Taiwan), as well as Overseas Chinese, are entitled to an additional deduction of CNY 1,300 (i.e. a monthly standard deduction of CNY 4,800).
Chinese social security contributions made in accordance with the Social Security Law are deductible for IIT purposes.
If an individual makes charitable contributions to qualified domestic non-profit organisations, such contributions are deductible to the extent of 30% of one's monthly taxable income reported. This deduction is applicable to all categories of income.
Income from labour services, author's remuneration, rental income, and royalty income
The following specific deductions are provided for income from labour services, author's remuneration, rental income, and royalty income:
- If the amount received in a single payment is not more than CNY 4,000, a standard deduction of CNY 800 is allowed.
- If the amount received from a single payment exceeds CNY 4,000, a deduction equal to 20% of the payment is allowed.
Payments received within the same month should be aggregated as one total amount for determining the allowable deduction.
Income from the operation of privately-owned businesses, sole proprietorship enterprises, and partnerships
There are specific and complex tax rules to address the deductions available for income derived from the operation of privately-owned businesses, sole proprietorship enterprises, and partnerships. Certain deduction caps are similar to those applicable to companies that are subject to corporate income tax. In addition, a monthly deduction of CNY 3,500 is allowed to be deducted from the net income derived from privately-owned businesses and sole proprietorship enterprises.
Income from the operation of a business on a contract or lease basis
If income from the operation of a business on a contract or lease basis is treated in the same way as income for a privately-owned business, a monthly deduction of CNY 3,500 is allowed to be deducted from the net income derived from the operation.
Income from the transfer of property (capital gain)
For sales of property, the original cost of the property and reasonable expenses incurred are deductible from the sales proceeds to arrive at the taxable income.
Generally, capital losses are not allowed to be set off against other income or carried forward to other years.
Losses from privately-owned business and sole proprietorship enterprise can be carried forward for five years.