China Clarifies Taxation of Directors Fees

Beijing, China (PressExposure) November 03, 2009 -- The State Administration of Taxation (SAT) recently released the Circular on Clarifying Several Policy Implementation Issues of Individual Income Tax. One major issue discussed was the taxation of director’s fees.

The Circular provides that tax collection of director fee as remuneration of personal service is only applicable to those circumstances where individuals assume the positions of director or supervisor, and are not employed by the company. Individuals who are employees of the company (including affiliated company) and who concurrently assume the posts of director or supervisor shall pay individual income tax on the combined income of director fee, supervisor fee and salary at the tax rate for income from wages and salaries.

Scott Garner of Lehman, Lee & Xu commented that “this policy change could potentially have a significant impact on the taxation of director’s fees in China. Under China’s individual income tax law, individuals file their tax returns and pay income tax on a monthly basis. Also, China’s tax rates are graduated based on a monthly income level. Under the old policy, a directors fee would be taxed without regard to the Directors other income. Under the new system, if a Director is also an employee of the income, the Director/Employee will be taxed at graduated rates on the combined salary and director’s fee. This could potentially increase the tax paid by employees who also serve as directors.”

Lehman, Lee & Xu is a prominent Chinese corporate law firm and trademark and patent agency with offices in Beijing, Shanghai, Shenzhen, Hong Kong, Macau, and Mongolia. The firm is recognized as a leading expert in corporate law and an active member of the Shanghai community.

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Press Release Submitted On: November 03, 2009 at 3:17 am
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