Individual industrial commercial defines as individuals or families who are involved in industrial and commercial activities within lawful areas, registered and recorded as law. Individuals attends in industrial and commercial activities should pay individual income tax, and deductions are listed as below:

1. Wages, salaries
   
   Actual and reasonable payment for employees as wages and salaries, allowing for deduction. Employers’ pre-tax deduction for salaries would not be allowed.
   
   
2. Social insurance, accumulation funds
   
   

   (1)	Payment to employees, for basic endowment insurance, medical insurance, unemployment insurance, maternity insurance, employment injury insurance and housing accumulation funds, could be deducted as regulated before tax.
   (2)	Supplement paid by individual industrial commercial employers for endowment insurance, supplement of medical insurance, which is less than 5% of employee’s salaries, those exceed could not be deducted.
   (3)	Individuals who are involved in industrial commercial activities, supplement of endowment insurance and supplement of medical insurance for employers themselves could be deducted partially at 5% of triple salaries at average from previous year, those exceed could not be deducted.

   
   
3. Commercial insurance
   
   Except for safety insurance for workers take part in particular jobs as regulated and other commercial insurance regulated by the Ministry of Finance, the General Tax Department, fees from commercial insurance paid for employers themselves or paid for employees cannot be deducted before tax.
   
   
4. Loan
   
   Reasonable activities taken by Industrial and commercial employers, which occurs loans without capitalization, would be permitted for deduction before tax.
   
   
5. Interest expenses
   
   The following interest expenses occurred in business activities among industrial and commercial individuals, could be deducted:
   

   (1)	Interest expense of loans from financial enterprises.
   (2)	Personal loan and loans from non-financial enterprises, interest expenses could not exceed the amount calculated at the rate of same-term and same-type loans given by financial enterprises.

   
   
6. Exchange losses
   
   In the monetary operation through industrial and commercial individuals, by the end of tax year, assets and liabilities in foreign currencies exchanged into CNY at the year end, exchange losses occurred could be deducted before tax except for those counted into asset cost.
   
   
7. Labor union dues, welfare fees, employee’s education fees
   
   Industrial and commercial individuals pay labour union dues, actual expenses of employee’s welfare and education fees would be deducted based on 2%, 14%, 2.5% of total amount of salaries as actual situation, respectively.
   
   Total amount of salary refers to the expense occurred from salary permitted for deduction before tax at current term. The exceed part of employee education fees could not be deducted at current term but accumulated until the tax year end for deduction. Triple salaries of industrial and commercial individuals could be the standard of deduction on personal labour union dues, welfare fees and employee education fees, which are based on the rates mentioned above.
   
   
8. Business entertainment fees
   
   Business entertainment fees incurred in industrial and commercial activities could be deducted based on the actual amount at a rate of 60%, which cannot be beyond 5‰ of operation revenue in current year. Business entertainment fees incurred during the issue date of business license and the beginning date of business operation, could be calculated as opening fees at a rate of 60% of actual amount.
   
   
9. Commercial and promotion fees
   
   Commercial and promotion fees must be directly related to industrial and commercial business operation, which is not over 15% of operation revenue in current year could be deducted as actual; the parts that exceed could be accumulated for deduction at the following tax year end.
   
   
10. Various charges and fees
    
    Administrative charges and association dues paid by industrial and commercial individuals as regulation allow for deduction based on actual amount.
    
    
11. Renting fees
    
    Renting fees incurred in industrial and commercial activities for fixed assets could be deducted as the ways below:
    
    

    (1)	Average deduction would be permitted for rentals of fixed assets with operating lease way, could be deducted based on the renting allotted term.
    (2)	With financing ways, renting fees of fixed assets could be deducted by stages, extracting depreciation expense based on the value of fixed assets leased in.

    
    
12. Property insurance
    
    Industrial and commercial individuals who purchase property insurance should pay insurance fee, which could be deducted before tax.
    
    
13. Labor protection fees
    
    Labour protection expense rationally occurred to industrial and commercial individuals would permit for pre-tax deduction.
    
    
14. Organization costs
    
    Beginning with the date of business license until the date starting business, all costs incurred in industrial and commercial activities allow for one-off deduction as organization costs in the current year starting business, except for costs of fixed assets and intangible assets, exchange losses, interest expense. Organization costs could also be averagely deducted within 3 years as a valid term, which cannot be alternated once determined.
    
    
15. Donation fees
    
    Donation committed by industrial and commercial individuals through public beneficial organization or government department above town-level, regulated by “the People’s Republic of China Public Beneficial Donation Law”, the amount of donation is not permitted to exceed that of taxable income at 30%, which could be deducted. The Ministry of Finance, China General Tax Department has indicated that full amount of donation fees could be deducted before tax.
    
    
16. Researching fees and facilities fees
    
    Researching and developing new products, new technology and new craft would occur researching expenses, as well as purchasing new facilities for new technology and new products, which value and cost are under RMB100 thousand, equipment for testing and experiment, full amount of costs could be directly deducted; if the unit price is over RMB100,000 (including 100 thousand),  facilities for testing and experiment would be regarded as fixed assets, current-term direct deduction would not be allowed.
    
    
17. Household fees
    
    Business operation costs should be separated with personal and household expenses in industrial and commercial activities for costs accounting. For those costs have difficulty to classify among operation, personal and household, which of 40% could be viewed as operation fees that permit for pre-tax deduction.
    

KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advice and services in respect of the formation and registration of company, application for various business licences and permits, any compliance, tax planning, audit and accounting in China. Please call and talk to our professional consultants for details.