Following the recent promulgation of the “Outline Development Plan for the Greater Bay Area” by the Central Committee of the Communist Party of China and the State Council on 18 February 2019, the Ministry of Finance (“MOF”) and the State Taxation Administration (“STA”) jointly issued a notice “About the individual income tax preferential treatment of individuals in the Greater Bay Area” (hereinafter referred to as “Circular 31”) on 14 March 2019 to promote and support of the development of the Greater Bay Area (hereinafter referred to as “GBA”) by attracting foreign high-end, urgently-needed talents.
The tax-preferential policy under Circular 31 is a five year policy (effective between 1 January 2019 and 31 December 2023), aims to promote the GBA Initiative and to implement the “One Country, Two Systems” policy in a practical manner.
Circular 31 applies to foreign high-end talent and urgently-needed talent (including persons from Hong Kong SAR, Macau SAR and Taiwan regions) who are working in the following nine cities in the GBA’s Pearl River Delta: Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing.
The Guangdong province and the city of Shenzhen will provide subsidies to qualified overseas high-end talent and urgently needed talent based on the difference in individual income tax (“IIT”) between mainland China and Hong Kong SAR. The subsidy is exempt from PRC IIT.
Revocation of other policies
Circular 31 is retroactively effective on 1 January 2019, and will simultaneously repeal two previous notices that were jointly issued by the MOF and SAT: the Notice on IIT Preferential Policies for the Guangdong Hengqin New Area (Caishui  No. 23) and the Notice on IIT Preferential Policies for the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone (Caishui  No. 25).
Definition of “talent”
Due to the fact that there are no standard criteria for defining “talent” in China or elsewhere in the world, the definition of foreign high-end and urgently-needed talent is subject to the detailed rules to be issued by the province of Guangdong and the city of Shenzhen based on local requirements and relevant policies.
In China, the Foreigners’ Work Management Departments of the People's Governments of all provinces, autonomous regions and municipalities refer to the relevant provisions of Waizhuanfa  No. 218 to issue R-type visas to foreign high-end and urgently needed talent. Whether the GBA’s IIT-preferential policy will also refer to these standards to define “talent” remains to be seen.
Please refer to Appendix 1 for a comparison of the effective tax rates on monthly wage income between mainland China and Hong Kong SAR, for an estimation on the extent of the subsidies that may be provided under Circular 31.
Furthermore, Circular 31 provides clarity on the tax treatment of the subsidy, by stipulating that subsidies provided under the policy will be exempt from PRC IIT.
In principle, Circular 31 draws from the original IIT differential subsidy policies of Hengqin District, Zhuhai (“Zhuhai Hengqin”) and Qianhai District, Shenzhen (“Shenzhen Qianhai”). (refer to Appendix 2 –IIT Subsidy Policies for Foreign Talent in Zhuhai Hengqin and Shenzhen Qianhai.) However, the relevant application procedures, such as to the qualifying conditions and application procedures; methodology to be adopted for computing the tax differentials; and application process and timeline, are subject to the detailed rules of Guangdong province and Shenzhen
Promote the development of businesses in the GBA
Circular 31’s preferential policies and other preferential policies to be implemented for the GBA, there is incentive for MNCs to consider establishing and expand businesses in the GBA.
With the influx of overseas talent, GBA’s financial, transportation, tourism, and infrastructure industries, among others will develop rapidly, high-class medical and educational resources will also soon be established in the GBA to supplement the growth of the area.
KPMG will continue to update you on the latest to the development of the GBA policies and share our observations and insights via alerts and workshops. Please refer to KPMG’s website for details.
|Monthly Wage Income(RMB)||Hong Kong SAR Salaries Tax (Effective Tax Rate)||PRC Individual Income Tax (Effective Tax Rate)||Tax Rate Differential/Subsidy Rate|
1. The effective income tax rate estimates for salaries and wages in mainland China are based on individual taxation rules for persons who are PRC tax residents. These estimates do not consider deductible items other than the standard deduction of RMB 60,000.
2. The Hong Kong SAR income tax rate estimates for salaries and wages are based on the 2018-19 “Single / Separated / Divorced / Widowed” marital status tax rate table. Relevant deductions, allowances and tax reductions have not been taken into consideration.
3. We assume that taxes are the responsibility of the employees themselves. Also, the exchange rate used for the calculation was 1 RMB = 1.1694 HKD.
|Tax Burden Subsidy Policy for Hong Kong SAR and Macau SAR Residents in Zhuhai Hengqin||IIT Financial Subsidy Policy for Overseas Talent in Shenzhen Qianhai|
|Applicable Individuals||Permanent residents of Hong Kong SAR and Macau SAR who work in Hengqin who are employed or are providing independent services||Qualified overseas high-end talent and urgently needed talent|
|Business Restrictions||No||In line with the development requirements of Qianhai’s industries|
|Applicable Income Category||All taxable income categories with regard to IIT||Income from wages and salaries, remuneration for independent services, authorial remuneration, royalties, and income from business operations as defined in the PRC IIT law|
|Calculation Methods for Preferential Subsidies||
The subsidy for the IIT difference between mainland China and Hong Kong SAR and Macau SAR can be calculated using either one of the following methods:
The subsidy is exempt from PRC mainland China IIT.
The financial subsidy will cover the tax difference between IIT already paid in Qianhai and 15% of taxable income.
The subsidy is exempt from PRC IIT.