Insights

CHINA’S NEW INDIVIDUAL INCOME TAX LAW: WHAT TO EXPECT?

WHY WAS THE LAW AMENDED?

• To ease the tax burden for low and mid-income earners and boost consumption
• The amendment comes at a time when the government is increasing efforts to support the elderly and encourage families to have more children
• Increase anti-tax avoidance to block tax loopholes and safeguard national tax rights

WHO IS CONCERNED?

• Individuals domiciled in China
• Individuals staying in China 183 days or longer during the tax year

WHAT CHANGES?

• Standard deduction is raised and becomes the same for both resident and non-resident taxpayers: from RMB 3,500 to RMB 5,000 per month or RMB 60,000 per year.
• New ‘special additional deduction’ category

From January 1. 2019, Chinese nationals (and selected foreign residents as an alternative to their existing fiscal arrangements) will be able to benefit from the following tax allowances:

• Education expenses for children
• Expenses for further self-education
• Healthcare costs for serious illness
• Housing loan interest
• Housing rent
• Support for elderly

• New categories of taxable income and progressive tax rates

• New Tax Brackets for IIT on Yearly and Monthly Taxable Comprehensive Income

• New Tax Brackets for Yearly IIT on Taxable Income of Operations

• New Monthly Taxable Income Formula

WHAT TO DO NEXT?

• Foreign companies should communicate any changes in payroll and IIT to local and foreign employees
• Companies are obliged to implement the new deductions available to resident employees.
• Expatriates should be prepared for any changes in deductibles and communicate with their employer
• Foreign taxpayers have until January 1. 2022 to make the transition to follow the same rules as Chinese taxpayers. We expect more details on the new rules regarding foreign taxpayers to be communicated by the end of 2021.