Royalties are operating income. The income that should be included in the sales (business) income includes sales of goods, provision of labor services, rental income, royalty income and deemed sales income.

Income from royalties refers to a taxable income of personal income adjustment tax in China. That is, the income obtained by units and individuals from providing or transferring various patents, know-how, copyrights and trademark rights for others to use. Without permission, no unit or individual may use the franchise rights owned by units and individuals to seek benefits for their own services. Only when the franchisee agrees to transfer or allow the use, and pays a certain usage fee, can it be used. Therefore, the royalty income is the exclusive income of the franchisor and an integral part of the taxable income of units and individuals.