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China: Individual income tax relief for new employees, interns

China: Individual income tax relief for new employees

The State Taxation Administration issued guidance providing tax relief for new employees and interns.

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Announcement [2020] No. 13 (known in English as the “Announcement on adjusting the individual income tax withholding method for certain taxpayers”) allows for a reduction of the income tax withholding imposed on the income of new employees and interns. The goal is to provide workers with more cash, but it will not reduce their year-end tax bills.

Announcement No. 13 is effective beginning from 1 July 2020, and is intended to support new graduates entering the workforce as new employees or as students pursuing internships. For the new employees, it is available for “resident individuals” (defined as those who have a domicile in China) or individuals who do not have a domicile in China but reside in China for 183 days or more during a calendar year. The relief is provided by enlarging the personal deduction used when calculating individual income tax withholding each month. For employees, the rules would normally reduce the RMB 5,000 monthly allowance to reflect the number of months actually in employment in the year; this is now adjusted as if the employee had commenced employment at the start of the calendar year. Improved treatment is also applied to interns.
 

Taxpayer

New employees

Students in full-time academic education 

Income type

Income from employment 

Independent personal services income

Adjustment to individual income tax withholding method

Before 1 July 2020

Cumulative personal deduction for current month = RMB 5,000 per month x months in employment with current employer 

Individual income tax withheld is calculated based on each payment.

From 1 July 2020

Cumulative personal deduction for current month = RMB 5,000 per month x number of months in calendar year to-date

Cumulative personal deduction for current month = RMB 5,000 per month x number of months (year to date) in internship with current tax withholding agent


Supporting documents must be retained by the individual taxpayers and their employing withholding agents for future tax audit.

Documents confirming eligibility will vary if the individuals are graduates (graduation certificate or employment dispatch certificate), interns (student card) or other employees who derive income from salary and wages for the first time during the year (commitment letter).

When foreign employees are hired, they need to reside in China for 183 days or more during a calendar year to be eligible. For taxpayers and foreign employees who have started employment or internship prior to 1 July 2020 and had income tax over-withheld for the year, annual reconciliation tax filing may be required after year-end to claim tax refunds when applicable.
 

For more information, contact a KPMG tax professional:

David Ling | +1 609 874 4381 | davidxling@kpmg.com

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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