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on Friday, 19 October 2018
in Business in China

China Has Amended the Individual Income Tax Law

On 31st August 2018, the Fifth Session on the Standing Committee of the 13th National People's Congress passed the Amendments to the PRC Individual Income Tax Law (IIT Law).

The main objective of the IIT Law amendments is to ease the tax burden on low and middle income earners. This is achieved by raising the IIT threshold and adding further deductible expenses. Thus, from 1st October 2018, the minimum threshold for personal income tax will be increased from RMB 3,500 per month to RMB 5,000 per month.

The additional deductible expenses include:

—   Education expenses for children;

—   Expenses for further self-education;

—   Healthcare costs for serious illness;

—   Housing loan interest and housing rental;

—   Elderly care expenses and;

—   Donations of less than 30% of total earnings to Charity.

The government’s goal in these amendments is to care for the rapidly aging population in China and to encourage families to have more children, all while improving the fairness of the taxation system. The fairness element can be further seen through the incorporation of tax anti-avoidance provisions.

An additional aim of the new IIT law is to modify the definition of ‘resident’; the previous law stated that a person could only be taxed on their income in China, not worldwide, if they lived in China for a full year and only after 5 years of residence could all of their income be taxed. The new regulation states that a ‘resident’ is an individual who has stayed within China for an aggregate of 183 days in a single tax year. This new amendment is silent on the 5 year rule and will greatly impact foreigners who do business in China.

The scope, standard and procedures of the aforementioned amendments will be regulated by the State Council and filed with the NPC Standing Committee.



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