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China’s Individual Income Tax – Part II: The Specifics Being Proposed

November 20, 2018

Preview:

The Standing Committee of the 13th National People’s Congress (NPC) met regarding the Draft Amendment on October 13, and further elaborated on the changes to the People’s Republic of China’s Individual Income Tax Laws (IIT). The specifications released include:

  • Common Reporting Standard
  • China-Sourced Income
  • Taxable Income
  • Itemized Deductions
  • Anti-Tax Avoidance
  • Residency and Global Tax
  • Annual Filing

China’s Ministry of Finance (MOF) and State Administration of Taxation (SAT) released draft implementation regulations. The Draft Amendment will take full effect on January 1, 2019. It is crucial to understand what these proposed individual income tax changes are and how they may affect you.

Common Reporting Standard

China is a part of the common reporting standard (CRS), which automates the exchange of information of assets held abroad by residents and provides transparency between citizens and their governing bodies for tax purposes.

How does this affect you?

If you become subject to global taxation by any country that utilizes CRS, all assets held in these countries will be disclosed to tax authorities. For more detailed information, please visit: OECD Automatic Exchange Portal

 

 

 

China Sourced Income

Incomes from the following activities are now considered China-sourced income:

  • Business operating activities in china
  • Transfer of equity invested in economic organizations
  • Author’s remuneration, or income from
    other economic organizations or resident individuals in China
How does this affect you?

If you have any of the aforementioned sources of income within China, you could be liable to pay taxes on those activities.

Taxable Income

  • The use of assets and property for donation, debt repayment, sponsorship, investment, and other purposes will be deemed “selling non-monetary property” and will be taxed
    as such
  • Further information is given which shows how foreign tax payment can be deducted against China tax liability

Itemized Deductions

Each additional itemized deduction must be deducted from ONE source of income.

 

 

 

 

 

 

 

Anti-Tax Avoidance Rules

  • Defines arm’s length principle, principle of independent transactions, reasonable business needs and other related terms
  • Introduces general calculation for interest payments from anti-avoidance adjustment

Residency and Global Tax

Foreign-sourced income is taxable for individuals who have been a resident of China for five consecutive years.

How does this affect you?

In order to be exempt from taxation on foreign-sourced income, you must first register with the tax bureau. Additionally, if you have been a taxable resident in China for five or more years, you must leave the country for at least 30 consecutive days within those five years.

Annual Filing

Individuals can now assign a withholding agent to manage annual filings.

Annual tax return must be filed if resident individual:

  • Receives income from multiple sources and total comprehensive income net of itemized deduction is above RMB 60,000
  • Receives independent services’ income, author’s remuneration, and remaining income (not including itemized deductions exceeds RMB 60,000
  • Payments on comprehensive income are less than IIT Payable for the year

Contact Us for More Information:

Michael Hughes
Assistant GM, China
mhughes@arpinintl.com
+861861174763
Sherry Wang
Global Development Manager
swang@arpinintl.com
+8613788936582

This information is provided for reference purposes and should not be used as legal advice. Consult http://www.chinatax.gov.cn for more information.

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