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People’s Republic of China – Public Consultation on Rules Implementing IIT Reform

PRC–Public Consultation- Rules Implementing IIT Reform

In this report we cover the recently released People’s Republic of China draft individual income tax (“IIT”) implementation rules and draft measures on PRC IIT itemised deductions and the public consultation, which will end on 4 November 2018.


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On 20 October 2018, the Ministry of Finance and the State Administration of Taxation of the People’s Republic of China (“PRC” or “China”) released the draft PRC individual income tax (“IIT”) implementation rules and draft measures on PRC IIT itemised deductions (hereafter referred to as “the Drafts”).1  These are available for public consultation, which will end on 4 November 2018.  (For prior coverage of the IIT reform, see GMS Flash Alert 2018-121, 14 September 2018.)    

The Drafts introduced detailed rules for implementation of the new PRC IIT law2 and administration of itemised deductions under the new regime.


Retaining the five-year rule and tax concessions on fringe benefits should significantly reduce the concerns of foreign individuals and their employers, and position China competitively to continue to attract and retain foreign talent.

The five-year concession will remain to keep foreigners without a domicile in China from becoming taxable on worldwide income.  This should be welcome news to assignees subject to Chinese tax law and their employers.

Administration of itemised deductions under the new regime will be simplified and will not unnecessarily add to the administrative burden of employers.  Employees can claim itemised deductions either by providing details to their employers via monthly withholding tax return filings or via annual reconciliation tax return filings.  The Drafts make it clear that individuals are responsible for the accuracy of information submitted for tax deduction claims.  

Salient Points of the Drafts

Foreign Individuals

PRC Domicile

PRC domicile will continue to be assessed based on an individual's household registration, family ties, or economic ties with the PRC. 

Five-Year Rule Will Be Retained

  • Tax residents without domicile in the PRC should continue to be exempt from PRC taxation on foreign-sourced income if they take a leave of absence from the mainland for a continuous period of greater than 30 days, or more than 183 days in aggregate in a calendar year, during the five-year period.
  • Validation of the PRC tax exemption on foreign-sourced income shall be required under the "put-on-record" filing system.

Tax-Exempt Benefits Will Be Retained

  • Foreign employees may elect to retain the tax-exempt benefits concessions they currently enjoy.
  • Where necessary conditions are met, foreign employees may also elect to claim itemised deductions under the new system.  However, they cannot enjoy a tax exemption on fringe benefits, such as children’s tuition and housing rentals, and simultaneously claim a deduction for such expenses under the itemised deduction system. 

High Net-Worth Individuals

Certain terms are defined and relevant rules are established for “related-party transactions” and “controlled foreign corporation” in preparation for the general anti-avoidance rule (hereafter referred to as “GAAR”) implementation.  (For more details, see “China Tax Alert” Issue 22, 24 October 2018.)

Resident Individuals Who Move out of China

Cancelation of PRC Household Registration Due to Overseas Immigration  

Resident individuals would be required to complete all necessary tax reconciliation filings due for the year of departure and obtain a tax clearance prior to cancellation of their PRC household registration.

PRC Resident Taxpayers and Their Employers

Documentation Requirement on Itemised Deductions

  • Individuals will be required to submit to their tax withholding agent or tax bureau, information relating to itemised deduction claims for first-time claims as well as when details of such claims change subsequently.  For details on itemised deductions, please refer to the summary in the Appendix of “China Tax Alert” Issue 22, 24 October 2018.
  • Individuals are responsible for the accuracy of information submitted for tax deduction claims.
  • Unclaimed tax deductible expenses incurred in one year cannot be carried over to the following year.


1  See:

For: Draft PRC IIT implementation rules


Issuance date: 20 October 2018

For: Draft measures on PRC IIT itemised deductions


Issuance date: 20 October 2018.

2  Amendments to the PRC Individual Income Tax (“IIT”) Law.  The Amendments were promulgated through
Presidential Decree No. 9.


For a full report on the Drafts from the KPMG International member firm in the People’s Republic of China, see, “Draft Implementation Rules on Revised IIT Law and Administration of Itemised Deductions Released for Public Consultation,” in China Tax Alert (Issue 22, 24 October 2018). 

The information contained in this newsletter was submitted by the KPMG International member firm in the People’s Republic of China.

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