Expats hit by China’s new individual income tax law

The new Chinese IIT law concerning income tax will impact expats as well as Chinese citizens as the changes pursue fairer income distribution.

Under the new law, foreigners who stays in the country for a minimum of an accumulated 183 days per year or more are now to be considered a tax resident and will pay the relevant amount of Chinese tax on their worldwide income.

The new limit replaces the previous five-year rule stating expatriates were only liable to pay taxes in China on their worldwide income after they’d been resident for over five years. Also, tax will now be calculated on an annual basis, rather than the previously monthly basis.

The new law states that the minimum threshold for personal income tax exemption will be raised from 3,500 yuan ($513) to 5,000 yuan per month or 60,000 yuan per year.

It adds special expense deductions for items like caring for the elderly, children’s education, continuing education, treatment for serious diseases, as well as housing loan interest and rent.

Expats’ bonuses will also be hit, as reported by International Investment.

The individual income tax was the third major contributor to China’s total tax revenue, following value-added tax and enterprise income tax. In 2017, China collected individual income taxes worth nearly 1.2trn yuan, about 8.3% of the total tax revenue.

The new law will come into force on Jan. 1, 2019 while part of the clauses including the minimum threshold for personal income tax exemption have gone into force this month.

Pedro Gonçalves
Pedro Gonçalves is Financial Correspondent at International Investment.

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