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Influences of China New IIT Law on Aliens

Amendment to China Individual Income Tax Law was officially approved on August 31, 2018 and will be implemented from January 1, 2019.

Main modifications are as below:

  1. Resident individual’s definition.

Foreigners who have a residence or reside in China mainland for more than 183 days in a tax year will be classified as resident taxpayers, that is, individual income tax shall be levied on comprehensive individual income both from China or abroad.

Non-resident individuals are those who have no residence and reside in China for less than 183 days in a tax year. They should pay their tax on the income they receive just in China mainland in accordance with the law.

Tax year means the Gregorian calendar year from January 1 to December 31.

But for some exceptions, such as whether retaining “five-year exception tax rule” as before, same taxpayer to become a tax resident in two countries or regions at same time, tax paid in the source of income country is higher than that of China,

In view of the complexity of the taxpayer’s actual situation, we will make specific analysis and judgment after new IIT law’s implementation regulations and specific provisions are carried out in the near future.

  1. Individual incomes are divided into three categories.
  2. Comprehensive incomes: (1) wage and salary (2) remuneration (3) author’s remuneration (4) royalties.
  3. (5) Business income
  4. Other incomes: (6) Income from interest, dividends and bonuses. (7) Income from the lease of property. (8) Income from the conveyance of property. (9) Contingent income.

Resident individuals shall calculate by tax year on a consolidated basis the individual income tax, and non-resident individuals shall calculate by itemization on a monthly or transaction-by-transaction basis the individual income tax, on the income obtained in category 1.

III. New IIT Tax rates and new threshold.

Threshold for wages and salaries will be raised to RMB5,000/month (old law: Threshold is RMB3500 for Chinese and RMB4800 for Alien) and new IIT table I and new IIT table II have been finalized from Oct 1, 2018.

  1. Tax Tables for Category 1(Comprehensive incomes)
Old IIT Rate Table
Grade Monthly Taxable Income Amount (RMB) Tax Rate Quick Deduction
1 ≤1500 3% 0
2 1500.01 to 4500 10% 105
3 4500.01 to 9000 20% 555
4 9000.01 to 35,000 25% 1005
5 35000.01 to 55000 30% 2755
6 55000.01 to 80000 35% 5505
7 >80000 45% 13505
New IIT Rate Table I

(applicable to comprehensive income)

Grade Monthly Taxable Income Amount (RMB) Tax Rate Quick Deduction
1 ≤3000 3% 0
2 3000.01 to 12000 10% 210
3 12000.01 to 25000 20% 1410
4 25000.01 to 35000 25% 2660
5 35000.01 to 55000 30% 4410
6 55000.01 to 80000 35% 7160
7 >80000 45% 15160

 

Remarks:
1. Monthly Taxable Income Amount=Monthly Pre-tax Income-Allowed deductions (social insurance personal parts, housing fund personal parts, etc.)-5000
2. IIT Rate Table I is applicable to comprehensive income, comprehensive income refers to four incomes (salary, remuneration, author’s remuneration, royalties).

Individual Income Tax Calculation Formula:

  1. Taxable income =Pre-tax salary income -social insurance personal part-housing fund personal part- threshold
  2. Individual Income Tax = Taxable income*Tax rate – quick deduction

How much more can get after Oct 1, 2018?

E.g.: Foreigner’s Pre-tax salary is RMB20,000, social insurance personal part is RMB2011.

IIT of Sep= (20000-2011-4800) *25%-1005=2292.25

Net Salary of Sep=20000-2011-2292.25=15696.75

IIT of Oct= (20000-2011-5000) *20%-1410=1187.80

Net Salary of Oct=20000-2011-1187.80=16801.20

Can get RMB1104.45(2292.25-1187.20) more per month.

Comparison table for different salaries

Monthly Salary 33048RMB is the salary standard for category B for alien’s work permit (IIT is 4352RMB). Monthly Salary 49572RMB is the salary standard for category A for alien’s work permit in Shenzhen

(IIT is 8961.6RMB).

Business Income’s Tax Rate Table

New IIT Rate Table II

(applicable to business income)

Grade Annual Taxable Income Amount (RMB) Tax Rate Quick Deduction
1 ≤30000 3% 0
2 30000.01 to 90000 10% 1500
3 90000.01 to 300000 20% 10500
4 300000.01 to 500000 25% 40500
5 >500000 30% 65500

Remarks:

The annual taxable income refers to the total amount of income in each tax year in accordance with the provisions of Article 6 of this Law after deducing the cost, expenses and losses. Other incomes‘ tax rate is 20%。

IV Annual Settlement and Payment for Resident Individuals

IIT for comprehensive income including wages and salaries obtained by foreign resident taxpayers is changed to annual settlement; Therefore, on the basis of the withholding tax paid to the tax authorities, foreign resident taxpayers are likely to need to settle the settlement and reimbursement of taxes from March 1 to June 30 of the following year. Detailed withholding method for advancement shall be formulated by the tax department of the State Council.

Foreign non-resident individuals who obtain wages earned are only allowed to be deducted by 5,000RMB per month, and special deductions and additional deductions are not allowed.

V Special deductions and Special additional deductions

For a foreign resident taxpayer, annual threshold is RMB 60,000 in each tax year and will be allowed to deduct some special deduction, special additional deduction and other legally deducted allowances.

Special deductions are including social insurance and housing fund personal parts, etc.;

Special additional deductions are including child education expenses, continuing education expenses, serious medical care costs, housing loan interest and housing rent, and expenses for raising the elderly, etc.

The specific scope, standards and implementation steps shall be determined by the State Council and reported to the Standing Committee of the National People’s Congress for record).

The current allowed exempted allowances (like housing rent, meals, traffic fees, laundry expenses, children education expenses, language training expenses, etc.) applicable to non-resident foreign taxpayers may be not exempted anymore.

VI China’s international tax avoidance network opened after CRS officially landed.

China conducted the first CRS financial information exchange on September 1. The revised individual income tax law first established anti-tax avoidance clauses, which will give the Chinese tax authorities a strong legal basis.

How are the criteria and scope of special additional deductions defined? What are the refund procedures for annual settlement and payment? Are tax-free allowances, five-year rules applicable to foreign non-resident individuals retained or phased out?

The implementation regulations, specific regulations and supporting measures will be announced in the near future.

We will continuously focus on the newest regulations and will post on our public account. Please follow us closely for newest news!

Welcome to entrust us to do social insurance, payroll and individual Income Tax declaration services for foreigners.

Contact: Olivia

Shenzhen ZIX Consulting Co., Ltd

Shenzhen Creative Human Resource Management Co., Ltd.

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