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China Individual Income Tax Law

By eusme | Report      02.04.2020     Tags:

The new Individual Income Tax system (“IIT”) has recently marked a major change in China’s tax system. This progressive tax law on individuals who reside in China was officially implemented in January 2019. Compared to the other system, the new IIT system contains major changes, including revised tax brackets, expanded deductibles and adjusted residency rules for foreign workers.

The new regulations have affected the tax burden of businesses and expatriates both positively and negatively. On the one hand, all individual taxpayers now benefit from a broader range of deductibles. In addition, taxpayers with a low- and mid-income enjoy greater tax relief and for most of the expatriates, the tax burden in general will remain stable or even be slightly mitigated.

On the other hand, foreign employees, who travel abroad frequently, earn a high income or receive income from an overseas company, will potentially be faced with an increased tax burden. In order to reduce their tax burdens and make necessary adjustments, EU SMEs operating in China and their employees are recommended to become familiar with the new IIT system.

This comprehensive guideline helps European business and individuals with the transition to the new IIT system.

Table of Contents

1. The History of Individual Income Tax

2. Individual Income Tax Attributes

  • Taxable income
  • Taxpayer
  • China source income
  • IIT filing regime
  • Tax deduction items for comprehensive income
  • Calculation of Taxable Income and Tax Rates

3. Tax Exemptions and Preferential Tax Policies

  • Tax exemptions
  • Tax preferential policy for foreign individuals during transition period
  • Transition preferential treatment for annual bonus and equity incentive for resident taxpayer
  • IIT preferential policy for Guangdong-Hong Kong-Macau Greater Bay Area.
  • Tax Preferential Policy under Tax Treaties

4. Calculation of IIT payables with Numerical Examples

  • Calculation formula of provisional withholding IIT for wages and salaries income
  • Calculation of provisional withholding IIT for personal services Income
  • Calculation of provisional withholding IIT for manuscripts and royalties’ income
  • Calculation of annual IIT reconciliation filing for comprehensive income
  • Calculation formula of transition withholding IIT for annual bonus
  • Calculation formula of time apportionment for wages and salaries income

5. Tax Filing Requirements

  •  The Requirement for Tax Collection and Administration under New IIT law
  •  Legal Liabilities for Non-Compliance
  • Foreign Tax Credit
  • Taxation Credit System

6. Tips for IIT Planning And Administration

About the author

Joey Zhou, Tax Partner of Mazars

Joey joined Mazars China in 2002 and has more than 19-year experiences as a tax advisory specialist. Joey serves as trusted business and tax advisor with a proven track record in helping cross-border companies and large and medium-sized enterprises investing in China. Her focus mainly include cross border tax planning, tax structuring, merger & acquisition, tax compliance assessment and improvements, transfer pricing and tax advisory services for several different industries, i.e. industry, service, infrastructure, aerospace, energy, high tech, and logistic etc.

She is also a member of Global China Service (“GCS”) mainly serving multi-national Chinese Group company, who is well-versed in dealing with cross-border merger & acquisition, due-diligence, overseas holding structure, coordination of local tax compliance etc.

About Mazars

Mazars is an internationally integrated partnership, specialising in audit, accountancy, advisory, tax and legal services. Operating in 91 countries and territories around the world, we draw on the expertise of 40,400 professionals – 24,400 in the Mazars integrated partnership and 16,000 via the Mazars North America Alliance - to assist clients of all sizes at every stage in their development.

Mazars has been represented in China for more than two decades. Today, Mazars in China operates as one integrated firm through over 34 cities: Beijing, Shanghai, Guangzhou, Wuhan, Hong Kong, Shenzhen, etc. We now have more than 4000 professionals and 100+ partners in Greater China, with more than 1.4 billion RMB turnover. Our client portfolio includes multinational companies as well as small-and-medium sized enterprises, with well-proven experiences in serving state-owned-enterprises, China and Hong Kong listed companies, and private companies.

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