As of January 1, 2019, a new system of individual income tax in China is going to be formally implemented. As expats working or doing business in China, what should you know about the new law?
1. Who should pay and what income will be included?
1) Expats have resided in China for accumulative 183 days or more in one tax year shall be resident individuals. Resident individuals shall pay IIT on their income gained within or outside China.
2) Expats have resided in China for less than accumulative 183 days in one tax year shall be non-resident individuals. Non-resident individuals shall pay IIT on their income gained within China.
2 What kind of income should pay
Under this new system, personal wages, salaries, remuneration for labor services, income from author’s remuneration, and income from royalty shall all be treated as the comprehensive income and will pay individual income tax after deduction of certain expenses.
However, insurance indemnities shall be exempted from the levy of individual income tax.
According to this provision, rich tax payer could leave wealth to their descendants without worrying about tax, by buying life insurance with themselves as the insured and their descendants as beneficiaries.
3. What expense could be deducted?
Six items of expenses related to people’s livelihood will be deducted, including:
– children’s education,
– continuing education,
– serious illness medical treatment,
– housing loan interest
– housing rent,
– support for the elderly.
The tax payer can report to the withholding agent about each item of expense. Similarly, the tax payer can also report to tax bureau online directly.
4. How to pay the income tax in China?
The IIT will be pre-withheld by the withholding agent who is usually the employer where salary is involved. Whereas in case of business, the payer becomes the withholding agent. The period can be on a monthly basis or whenever they pay the income. From 1st of March till 30th of June of next year, the tax-payer will report to tax bureau and filing annual reconciliation return. However, no further details about how to file it have been announced.
Till today, no extra explanation has been made about whether the original tax concessions for expats still works. However, given that six items of expenses could be deducted according to the new law, there exists a possible revocation of the original tax concessions.
We will see.
Individual Income Tax Rates (Applicable to comprehensive income)
| Grade | Annual taxable income in China | Tax rate (%) |
| 1 | Income of RMB 36,000 or less | 3 |
| 2 | The part of income in excess of RMB 36,000 to 144,000 | 10 |
| 3 | The part of income in excess of RMB 144,000 to 300,000 | 20 |
| 4 | The part of income in excess of RMB 300,000 to 420,000 | 25 |
| 5 | The part of income in excess of RMB 420,000 to 660,000 | 30 |
| 6 | The part of income in excess of RMB 660,000 to 960,000 | 35 |
| 7 | The part of income in excess of RMB 960,000 | 45 |
Related post: Tax Reduction in China-More Details
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