This report covers a new circular in the People Republic of China concerning transitional measures for aspects of the recent income tax reform.
Following on from the new Individual Income Tax (“IIT”) Law which came into force on 1 January 2019, a new Chinese Circular sets out transitional measures for the application of the preferential tax treatment for tax-exempt benefits for foreign employees, annual bonuses, equity-based compensation, and severance payments.1 (For prior coverage of the IIT reform, see GMS Flash Alert 2019-010, 23 January 2019.)
The Ministry of Finance and the State Administration of Taxation of the People’s Republic of China (“PRC” or “China”) have jointly released Circular 164 entitled “Notice of issues concerning the transitional policies on preferential tax treatments under the amended PRC IIT law.”
The release of Circular 164 is in line with the government’s recent strategy to keep governmental policies stable and to foster the overall reduction of tax burdens for individual taxpayers.
Moreover, the new rules will affect companies’ tax cost forecasts and possibly their talent retention strategies and policies, as well as their tax reimbursement policies.
Taxpayers should bear in mind that for preferential tax treatment there are qualifying conditions and reporting requirements.
The tax preferential treatments which existed under the previous tax regime will be extended from 1 January 2019, for a period of three years on the types of income noted below.
Foreign employees who are PRC tax residents (i.e., who reside in the PRC for 183 days or more during the calendar year concerned) may elect to either:
Individual taxpayers and their withholding agents can elect to apply either of the following methods to calculate IIT on annual bonus payments:
Other IIT preferential treatments remain intact under the new PRC IIT regime.
In applying these preferential treatments, individual taxpayers and their withholding agents need to consider the following:
KPMG will continue to pay close attention to the relevant circulars to be promulgated under the new IIT regime and to share our observations with GMS Flash Alert readers. Please feel free to contact us for the most recent news in relation to the IIT reform and other tax regulations.
|Level||Taxable Income||Tax Rate (%)||Quick Deduction (RMB)|
|1||not in excess of RMB 3,000||3||0|
|2||RMB 3,000 to RMB 12,000||10||210|
|3||RMB 12,000 to RMB 25,000||20||1,410|
|4||RMB 25,000 to RMB 35,000||25||2,660|
|5||RMB 35,000 to RMB 55,000||30||4,410|
|6||RMB 55,000 to RMB 80,000||35||7,160|
|7||in excess of RMB 80,000||45||15,160|
Source: KPMG in the People’s Republic of China
|Level||Cumulative Taxable Income||Withholding Rate (%)||Quick Deduction (RMB)|
|1||not in excess of RMB 36,000||3||0|
|2||RMB 36,000 to RMB 144,000||10||2,520|
|3||RMB 144,000 to RMB 300,000||20||16,920|
|4||RMB 300,000 to RMB 420,000||25||31,920|
|5||RMB 420,000 to RMB 660,000||30||52,920|
|6||RMB 660,000 to RMB 960,000||35||85,920|
|7||in excess of RMB 960,000||45||181,920|
Source: KPMG in the People’s Republic of China
1 Caishui  No. 164 - Notice of issues concerning the transitional policies on preferential tax treatments under the amended IIT law (“Circular 164”).
This article is excerpted with permission from “Transitional Provisions for PRC Individual Income Tax Preferential Tax Treatment,” published in China Tax Alert (Issue 31, December 2018) a publication of the KPMG International member firm in the People’s Republic of China).
RMB 1 = EUR 0.130
RMB 1 = USD 0.147
RMB 1 = GBP 0.113
RMB 1 = TWD 4.55
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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