China: Individual income tax guidance

Income assessment methodology for income generated by sole proprietorships and partnerships

Income assessment methodology for income generated by sole proprietorships, partnerships

The Ministry of Finance, and State Taxation Administration in late December 2021 issued three circulars that set forth the income assessment methodology for income generated by sole proprietorships and partnerships.

The guidance in the circulars reflects certain individual income tax policies that may benefit salary income earners and encourage entrepreneurship while strengthening tax compliance.

The guidance is provided by:

  • Announcement No. 41 of 2021 (30 December 2021)—known in English as the “Announcement on measures for individual income tax administration on operating income from equity investment”—provides that effective 1 January 2022, all sole proprietorships and partnerships holding equity investments (such as holdings of equity, stocks, and shares in the property of a partnership) will be subject to audits for individual income tax assessment and reporting purposes.
  • Announcement No. 42 of 2021 (31 December 2021)—known in English as the “Announcement on extending preferential individual income tax policies on annual bonuses and others”—extends preferential individual income tax policies on annual bonuses and equity incentives granted by public companies through 31 December 2023 and 31 December 2022, respectively.
  • Announcement No. 43 of 2021 (31 December 2021)—known in English as the “Announcement on extending preferential individual income tax policies on allowances for foreign nationals and others”—extends the preferential individual income tax policy (tax exemption treatment) regarding benefits-in-kind provided to foreign nationals working in China through 31 December 2023.


For more information contact a KPMG tax professional:

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

 

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