The comparison of individual income tax in China and Ireland

University Degree Business and Administrative studies

Introduction:

For this paper, our project is the comparison of taxation between China and Ireland. Our team “Dream Team”，picked the Income Tax as an core example to discribe the differences. So, we will introduce simply some information about Chinese income taxation, of course, we will also try our best to realise the Irish income tax, from several aspects: Definition, Taxpayer, Income tax rate, and the calulation of the number of income tax. We wanna have a further comprehension on the taxation.

(1) Definition:

Ireland:

The income tax levied on the income of individual,unincorporated bodies, trustees and personal representatives in the country by the taxation institute or the department of taxation.This is partly constitute on government income.

China:

Individual income tax is a legal-standard's blanket term that adjust social relation about the levy and management of personl income tax between government revenue collecting offices and natural persons. Personal income tax is a tax levied on income of a naural person, include individual wage, stipend income, income from production and business by individually-owned business and etc 11 items . (See appendix 1.1)

(2) Taxable Person:

Ireland:

(1) Individual

(a) The individual who is resident, ordinarily resident and domiciled in the State is liable to income tax in respect of his/her total income wherever arising.

(b) An individual who is not resident in the State is normally liable to income tax in respect of income arising to him/her in the State. If he/she is non-resident but ordinarily resident, he/she is also liable to income tax on foreign income (other than foreign earnings) where that foreign income exceeds €3,810 in a year of assessment.

(c) A non-resident individual, who is an Irish citizen, or, having been resident in the State, is now resident abroad for health reasons, may be entitled to a measure of income tax relief.

(d) An individual who is domiciled abroad but who is resident in the State is taxed only on so much of his/her income which arises outside Ireland and the United Kingdom as is remitted to the State.

(e) An individual who is resident in Ireland and who works outside Ireland and the UK for a certain minimum period in a tax year may be entitled to an income deduction. The amount of the deduction is related to the time spent working abroad.

(f) An individual is resident in Ireland in a tax year if he/she spends 183 days or more in Ireland in that year or spends an aggregate of 280 days in Ireland in that year and the previous tax year.

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(g) An individual who has been resident in Ireland for three consecutive tax years becomes ordinarily resident in Ireland from the beginning of the fourth tax year.

(2) Unincorporated body

Income tax is normally chargeable on the entire income of an unincorporated body at the standard rate. Non-resident companies are liable to income tax in respect of any income arising in the State which is not charged to corporation tax.

(3) Partnership

A partnership as such is not chargeable to income tax. Each partner is chargeable individually to the tax referable to his/her share of the partnership income.

China:

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(g) An individual who has been resident in Ireland for three consecutive tax years becomes ordinarily resident in Ireland from the beginning of the fourth tax year.

(2) Unincorporated body

(3) Partnership

A partnership as such is not chargeable to income tax. Each partner is chargeable individually to the tax referable to his/her share of the partnership income.

China:

The taxpayer of individual income tax in China is to live in China, and the people not live in China but receive income from China, include Chinese citizens in China, Foreign Individuals who derive income from china and Hong Kong, Macau and Taiwan compatriots.

Residents taxpayer

Resident taxpayers are individuals who have domicile in China, or those without domicile but who have resided in China for one year or more. They shall pay their individual income tax on their income derived from sources both inside and outside of China.

(2) Non-residents taxpayer

Non-resident individuals who do not live in China but receive income from China, and those non-residents who live in China for less than one year, must pay individual income tax on income derived from sources within China.

(3) Applicable Tax Rate

Ireland:

This Income Levy is payable on gross income from all sources before any tax reliefs, capital allowances, losses or pension contributions.

The income levy is payable at the following rate in 2009(Appendix 1 ):

The personal income tax rates for 2009 as follows(Appendix 2 ):

China:

(1) Income from wages and salaries, applicable level 9 progressive tax rate in excess of specific amounts, monthly tax taxable income calculation. According to monthly income of individual wage, stipend, The tax rate bracket and division, the highest level is 45%, the lowest level is 5%.there are nine levels in total. (see Appendix 3)

(2) Individual income from production and business operations of enterprises or institutions and contracted or leased operation into the annual taxable income，applicable level 5 progressive tax rate in excess of specific amounts。The tax rate bracket and division, the highest level is 35%, the lowest level is 5%. there are 5 levels in total. (see Appendix 4)

(3) Proportional rate of tax. income from author's remuneration, remuneration for personal services, royalties, interest, dividends, bonuses, lease of property and transfer of property, and other incomes, applicable to the scale tax rate of 20%

The level of china's Individual income in 2009 (Appendix3 )

Appendix 4

N.B:The amount of monthly income after deducting the cost of the balance of 2000 CNY(EUR 201) or less net of additional costs to the balance. The latest exchange rate:1 EUR=9.9457 CNY(4th Nov. 2009)

Comparion：

The similarity is both of Chinese and Irish personal income tax rate rely on the personal income level.

And the personal income tax rate in Ireland also depends on the personal Circumstances, marital status like “ whether she is single, with children or not...” to make thresholds, then income in the threshold taxed at 20%, balance at 41%.

However, in China, the tax rate just depend on income level, but using different method which is based on the sources of income. Such as income from wages and salaries, gains of contracting enterprises and individually-owned business, author's remuneration and dividends and rental…, and suiting to 3 ways of level 9 and level 5 progressive tax rate in excess of specific amounts and proportional rate, respectively. And there are some certain thresholds based on the amount of income that are shown in the above table.

(4) computation of tax amount

Ireland:

(1) Irish income tax exemption & beliefs:

In Ireland there is no the so-called tax threshold, but the certain tax exemption they can enjoy. The taxable income can be reduced by personal tax credits. The tax credits are at standard at 20% rate of tax. The tax credits is depending on the personal circumstances, such as the situation of marriage and childbearing , etc. Except those tax credits, all other incomes should be taxable. (It is different from China. In china, there is no tax credits, but using the threshold (2000 CHY)which balance and shorten the gap between haves and have-nots). The principal tax credits for 2009 are：----single person €1,830 and married couple €3,660. In addition a PAYE credit is available for individuals paying tax under the Pay As You Earn system. And there are some other exemption are available, such as rent, service charges and so on. And some other exempt categories: Full medical card holders and Social Welfare payments are also excluded from the income levy

(2)The principal exemptions are from income tax on:

Incomes below certain thresholds Income derived from certain leasing of farm land Certain earnings of writers, composers and artists Interest on Savings Certificates, Savings Bonds and Instalments Savings Schemes, subject to certain upper limits on holdings,The discount on certain non-interest-bearing Government securities, and the premium on certain others Investment income arising from the investment of compensation payments made by the Courts, or under an out-of-court settlement, in respect of personal injury claims where the individual is permanently and totally incapacitated from maintaining himself/herself as a result of the injury.

(3) calculating the income tax

In Ireland, before calculating the income tax, subtract the following from the total income:

(a) Pension contributions

(b) Payments to a Permanent Health Benefit Scheme (to a maximum of 10% of income).

(d) Work expenses that were necessary to carry out the work duties.

One personal taxable pay is then taxed at 20% of income below the standard rate cut-off point. The amount in excess of the cut-off point is taxed at 41%. This gives the Gross Tax for Ireland. The value of tax credits is then subtracted from this to give the amount of tax that the person have to pay.

And if the total income is less than your relevant exemption limit set out in the above, the tax will not be paid.

China:

Individual income tax divide consist of income earned from china and income earned outside China, including mainly 11 items. There are Income from wages and stipend, Income from production and business by individually-owned business, Income from contracted and leased operation of enterprise or institution, Income from remuneration for personal service, Income from author's remuneration, Income from loyalities, Income from interest, dividends and bonuses, Income from lease of property, Income from transfer of property, Contingent income, Other income .

(1) Individual income tax of income from wages and salaries =

taxable income amount by the applicable tax rate - the number of simplified deduction

(2) Individual income tax of income from production and business

by individually-owned business = taxable income amount by the applicable tax rate - the number of simplified deduction

(3) Individual income tax of income from contracted and leased operation of enterprise or institution = taxable income amount by the applicable tax rate - the number of simplified deduction

(4) Individual income tax of income from remuneration for personal service(Below the 4000 yuan)=(everytime income - 2000yuan) ×20%

individual income tax of income from remuneration for personal service(over the 4000 yuan)=[everytime income ×(1- 20%)] × axable income amount by the applicable tax rate - the number of simplified deduction

(a) The income of not more than 20,000 yuan ,tax rate is 20%, the number of simplified deduction is 0.

(b) The income of between 20,000 yuan and 50,000 yuan , tax rate is 30%, the number of simplified deduction is 2000 yuan.

(5)individual income tax of income from author's remuneration(everytime income below 4000 yuan) =(everytime income - 2000yuan) ×20%×（1- 30%）

individual income tax of income from author's remuneration(everytime income over 4000 yuan) =[ everytime income × (1- 20%)] ×20%×（1- 30%）

(6) Individual income tax of Income from loyalities and lease of property (everytime income below 4000 yuan) =(everytime income - 2000 yuan) ×20%

individual income tax of Income from loyalities and lease of property (everytime income over 4000 yuan) =[ everytime income × (1- 20%)] ×20%

(7) Individual income tax of Income from interest, dividends and bonuses, transfer of property ,Contingent and Other =everytime income ×20%

Comparison：

The method of calculating the income tax is different.

In Ireland, there are many tax exemptions and preferences taxpayers can enjoy. The taxable income can be reduced by personal tax credits. The tax credits are at standard at 20% rate of tax. Except those tax credits, all other incomes should be taxable.

It is different from China. In china, there is no so much tax credits, but using the cut-off point and the simplified deduction in different income levels. And the income over the start point of tax which is increased to 2000RMB=200EURO should be taxed, if the amount of the income not exceed, no tax will be paid.

So I think the calculation of income tax of Ireland is more complex than that of China.

Conclusion

Through the study of the income tax betwwen China and Ireland. We get some knowledge and information about the taxation of both two countries. We know there are many differences existed in the details of taxation, of course, there are some similarities between them. We think , no matter that whether the two countries’ taxation are same or different, which are based on the national circumstances. And the tax systems of the two countries exsit some insufficient that should to make better.

Reference

The book, 《Guide to Tax in Ireland--“fact and figures” 》

The book, 《Income Tax 2008》

http://www.revenue.ie/