Since 1st of Jan, 2019, the new IIT law of PRC has come into effect. For foreigners working in China，what impact it will bring?
Except the general rule applies to everyone, the following points are important for foreigners:
1. Who should pay IIT? What kind of income is taxable?
1) Foreigners who have lived in China for accumulative 183 days or more in one tax year shall pay IIT on their income gained within or outside China. However, if this foreigner stays in China less than six consecutive years, even for each year accumulative 183 days or more, shall be exempted from IIT for his/her overseas income by filing with competent tax authority. Moreover, if during this six consecutive years, he/she leaves china for more than 30 days once, the consecutive years will be restarted.
For example, if he/she leaves China for more than 30 days in 2023, which is the fifth consecutive years for he/she lives in China, the consecutive years will restarted in 2024.
2) Foreigners who have lived in China for less than accumulative 183 days in one tax year shall only pay IIT on their income gained within China.
2. IIT exemption
In our previous blog: Individual Income Tax in China – How to Pay in 2019?, we have listed what kind of income is taxable income.
However, the following income are exempted from IIT:
1) Awards for achievements in science, education, technology, culture, public health, sports and environmental protection granted by foreign or international organizations;
2) Insurance indemnities;
3) Basic pension.
3. Tax deduction or preferential treatment?
Before this new IIT, foreigners working in China could enjoy housing, language training, children’s education subsidies etc., which are all tax-free. However, according to new IIT law, six items of expenses related to people’s livelihood could be deducted, such as children’s education, continuing education, housing rent etc. Then the question is: do foreigners have to follow the new law or what?
According to a notice issued by General Taxation Administration, from 1st of Jan, 2019 till 31th of Dec, 2021 (transition period), foreigners could choose to enjoy the original rule on tax-free subsidies or choose to follow the new IIT law for expenses deduction. But once he/she makes the choice, he/she has to stick to it in the whole tax year.
After the above-mentioned transition period, the original subsidies will not apply any more. Only expenses deduction listed in new IIT law will apply.
Related link:
Implementation Regulations for the Individual Income Tax Law of the People’s Republic of China
