Taxation investigation not to be ignored by film and TV studios

Setting up studios to engage in film and TV business is a common practice in entertainment industry. With the disclosure of tax irregularities cases of individual film and TV stars, tax regulation and investigation of the entertainment industry comes high on the agenda of the regulators. The authors will advise on how the film and TV studios should respond to the future tax regulation and investigation for those who are interested.

LEGAL NATURE AND TAX PAYMENT

In law, a studio is usually a sole proprietorship enterprise or individually owned business. Based on applicable laws and regulations of the PRC, the investor or owner of a studio is due to pay individual income tax. Rather than impose corporate income tax on the income from production and operation of the sole proprietorship enterprise or individually owned business, the applicable Chinese law levies individual income tax on the income from business operation of the investor of the sole proprietorship enterprise, or the owner of the individually owned business, which is taxed at a progressive rate ranging from 5% to 35%. A rate as high as 35% is applicable to the portion in excess of RMB100,000 (RMB500,000 as stipulated in the Individual Income Tax, which took effect on 1 January 2019) in annual taxable income.

TAX INVESTIGATION CAMPAIGNS

Since 2010, the State Administration of Taxation (SAT) has issued the Notification on further Strengthening the Management of Individual Income Tax Payment of High-income Individuals (document No. 54) and Notification on the Pragmatic Strengthening the Management of the Individual Income Taxation of High-Income Individuals (document No. 50). Thus, the management and collection of the individual income tax of the high-income professionals in film and TV industry (such as the actors and actresses) come high on the agenda of the tax regulators.