Taxation investigation not to be ignored by film and TV studios

By Tao Shan and Zhu Zhitong, Hylands Law Firm

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.

TAO SHAN Partner Hylands Law Firm
Hylands Law Firm


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.


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.

ZHU ZHITONG Partner Hylands Law Firm
Hylands Law Firm

In June 2018, the SAT ordered local taxation authorities in Jiangsu and other places to probe the taxation issue involved in dual contracts signed by related film and TV individuals, which are disclosed online. In the same month, the Propaganda Department of the Communist Party of China, Ministry of Culture and Tourism, SAT and other ministries jointly issued a notification requiring a crackdown on the problems of pay irregularities, dual contracts and tax evasion in the film and TV industry.

On 2 October 2018, in response to the recent case of tax evasion of a high-income professional in film and TV industry, the SAT issued the Notification on Tightening Regulation of the Taxation of Film and TV Industry (document No. 153), which is applicable to the film and TV studios. As instructed by the document, the film and TV studios must go through four phases of taxation investigation as follows:

Phase one: Self-examination and self-correction. From 10 October 2018, the film and TV production companies, agencies, entertainment companies, celebrities’ studios and other companies and high-income professionals in taxable sectors should self-examine their tax declaration and tax payment records since 2016, and self correct any irregularities. Those film and TV companies and individuals who thoroughly and satisfactorily conducted self-examination and self-correction by the end of December 2018 will be exempted from administrative penalties and fines.

Phase two: Correction under supervision. From January through February 2019, based on the taxpayers’ self-examination and self-correction results, the tax authorities will warn relevant taxpayers to conduct strengthened self-correction, and supervise them. The taxpayers who conducted satisfactory self-correction after being warned by the tax authorities will be given lighter or mitigated administrative punishment according to the law. In the case of minor irregularities, administrative punishment may be exempted.

Phase three: Intensified investigation. From March through to the end of June 2019, based on phase one and phase two results, the tax authorities will step up investigations into the companies and individuals who refuse to correct their irregularities and treat the case in a serious manner in accordance with law.

Phase four: Sum-up and improvements. By the end of July 2019, in response to the prominent problems occurring during the regulation of taxation of the film and TV industry, the authorities will study how to improve the management measures, and establish and improve a long-term mechanism to manage the taxation of the film and TV industry.


From January 2019, tax investigation comes into the second phase, of correction under supervision, where taxpayers who conducted self-correction after being warned may be given lighter or mitigated administrative punishment in accordance with law, or exempted from the administrative punishment in the case of minor irregularities.

The authors would like to remind professionals in this industry that this phase of correction under supervision will be brief, and the studios that fail to complete correction by the end of February 2019 might face intensified investigation and serious punishment from tax authorities. It is highly recommended that the film and TV studios should attach high importance to their work in this phase, keep contact with the authorities, and positively respond to the requirements of correction under supervision.

The studios should keep smooth communication with the tax authorities in their jurisdictions in relation to the specific situations of the studios, and conduct strengthened self-correction in conjunction with the warnings and supervision of the authorities if there are any deficiencies in their self-examinations and self-corrections, in order to avoid serious legal liabilities because of thinking less of the requirements, or pushing their luck.

Tao Shan and Zhu Zhitong are partners at Hylands Law Firm

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