Law firms should be quick out of the starting blocks in their preparations for the new levy based on the audit system of taxation, writes Liu Tianyong
Recently, the State Administration of Taxation (SAT) published the Announcement on Individual Income Tax Issues Relevant to the Employees of Law Firms (announcement No. 53), revising in a relatively significant manner the policy on individual income tax on employees of law firms. The document was implemented on 1 January 2013, and is explained as follows for reference by relevant people in the legal sector.
Levy based on audit to gradually become the main form of levying individual income tax on law firms. As early as 2002, the SAT issued the Notice of the State Administration of Taxation on Strengthening the Levy of Individual Income Tax on Investors in Law Firms and Other Such Intermediary Firms Based on Audit (Guo Shui Fa  No. 123) expressly specifying that no region could subject law firms to the method of levying tax by assessment for the whole industry, and that those law firms that fulfilled the conditions for levy based on audit should be subject to the levy of individual income tax based on audit.
In May 2010, the SAT issued the Notice of the State Administration of Taxation on Further Strengthening the Administration of the Levy of Individual Income Tax on High Income Earners (Guo Shui Fa  No. 54) emphasising that individual income tax was not to be levied on tax accountant, accounting, law and other such intermediary firms by the assessment method.
Liu Tianyong is a tax lawyer and director of Hwuason Law Firm in Beijing. He is also deputy director of the Fiscal Law and Tax Law Committee at the All China Lawyers Association