Is the income derived from the transfer of the sole proprietorship by the sole proprietor the income from the transfer of property or from the operation of the sole proprietorship? The tax rate on income from transfer of property is20%, the maximum tax rate on operating income can be reached35%The huge tax gap means that this is a problem worth thinking about and a business worth planning.

The problem is an old one. It has been debated before. After the implementation of the new Individual Income Tax Law, many people think that the old question has been answered.

Article 6 Paragraph 8 of the Regulations for the Implementation of the Individual Income Tax Law:

"Income from transfer of property means income derived by individuals from the transfer of securities, stocks, shares of property in a partnership, real property, machinery, equipment, vehicles and other property."

Therefore, many people believe that since the Regulations specify that the transfer of an individual's share of property in a partnership is the income from the transfer of property, then a sole proprietorship is an unincorporated organization listed in Article 102 of the General Provisions of Civil Law and should be subject to the same tax policy as a partnership. This statement can not be said to be unreasonable, in the past State Administration of Taxation of various normative documents, sole proprietorship and partnership often apply the same tax policy, even the most basic normative documents to regulate the administration of individual income tax of the two are the same - "Regulations on the Individual Income Tax levied by sole proprietorship and partnership investors" (finance and tax[2000]91No.).

But are sole proprietorships really subject to exactly the same tax policies as partnerships? As the saying goes, to talk about taxes without the law is to go rogue. Let's look at the difference in legal status between the two.

Article 2 of the Sole Proprietorship Enterprise Law
"A sole proprietorship enterprise as used in this Law refers to a business entity established within the territory of China in accordance with this Law, invested by a natural person, whose property is owned by the individual investor, who shall assume unlimited liability for the debts of the enterprise with his personal property."

Article 17

"The sole proprietor of a sole proprietorship enterprise has the ownership of the property of the enterprise in accordance with the law, and his relevant rights may be transferred or inherited in accordance with the law."

Article 2 of the Partnership Enterprise Law

"The term" partnership "as used in this Law refers to the general partnership and limited partnership established within the territory of China by natural persons, legal persons and other organizations in accordance with this Law. A general partnership consists of the general partners, who bear unlimited joint and several liability for the debts of the partnership. Where there are special provisions in this Law on the form of liability of a general partner, such provisions shall prevail. A limited partnership consists of a general partner and a limited partner. The general partner shall be held jointly and severally liable for the debts of the partnership, and the limited partner shall be liable for the debts of the partnership to the extent of the amount of capital subscribed by him."

Article 17
"The partners shall perform their obligation to contribute capital in accordance with the method, amount and time limit of contribution agreed upon in the partnership agreement. If capital contribution is made with non-monetary property, the transfer of property rights shall be handled in accordance with the provisions of laws and administrative regulations."

Article 20

"The capital contributions of the partners, the gains made in the name of the partnership and any other property acquired in accordance with the law shall be the property of the partnership."

Comparing with the above legal provisions, we can see that the sole proprietorship and partnership have different legal effects on the possession of property. The property of a sole proprietorship is owned by the sole proprietor. The sole proprietorship is a pure "conduit" and cannot own the property itself. But the partnership is different, the partnership property does not belong to the partners, the partners can only own the partnership's share of the property. And from Article 17 of the Partnership Enterprise Law "investment with non-monetary property, in accordance with the provisions of laws and administrative regulations, the transfer of property rights procedures, shall be handled according to law" backward, it can be seen that the partnership can have the ownership of property independently. Although neither a sole proprietorship nor a partnership is a legal person, there is no doubt that a partnership is more sound in terms of specific legal personality.

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