High-income earners in China fear new tax law

One of the biggest overhauls in China’s personal income tax policies is set to alleviate the burden on millions of Chinese. However, for the high-income earners, like several expats, there is growing concern about talks to tax bonuses and the 45% levy.

One of the biggest fears among high-income earners in Beijing is that the benign tax policies on year-end bonuses will be scrapped. The debate is still ongoing on how year-end bonuses will be treated. However, the signs point that people with more than one source of income will face an increased tax burden.

China now levies tax on salary progressively in seven brackets, ranging from 3% up to 45%. Authorities also collect tax on income including property transactions, dividends, and royalties, under a flat 20% rate.

Under the new tax code, remunerations and royalties will be combined with salary under the progressive tax brackets, up to a maximum of 45%. This adds up to a higher taxable income base for some.

At 45%, China has one of the highest tax rates on upper-income earners. A threshold that makes it harder for the country to become attractive for skilled international talent.

In comparison, cities such as Hong Kong and Singapore have much lower tax rates, with the upper band capped at 17% and 22% respectively.

The draft amendment raises the minimum threshold for personal income tax from 3,500 yuan (about $544) per month to 5,000 yuan, or 60,000 yuan per year.

Besides the threshold change, the new tax scheme will include deductible items including education, medical costs, mortgage loan interest and housing rents.

Once passed, the amendment will take effect from January 1, 2019.

Pedro Gonçalves
Pedro Gonçalves is Financial Correspondent at International Investment.

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