This report explains a new Circular that provides the framework for determining eligibility and the subsidy available under the new individual income tax preferential treatment provisions offered to attract talented workers to the Greater Bay Area.
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To implement Circular 31’s preferential individual income tax (ITT) policy to attract foreign high-end and urgently-needed talent to the Greater Bay Area,1 on 22 June 2019, the Department of Finance of Guangdong Province and the Guangdong Provincial Tax Authority in the People’s Republic of China (PRC or China) jointly issued Circular 2 setting out the general framework for determining eligibility and extent of the IIT subsidy available.2
The GBA’s preferential tax policy is causing many companies to review their business plans as well as their deployment of personnel to/within the GBA with the aim of facilitating overall business development and company growth.
The second table below shows how the tax burdens for qualified foreign talent that work in the GBA will be effectively reduced. If these individuals’ IIT is borne by the companies, the subsidies will effectively reduce companies’ labour costs.
Circular 2 takes retroactive effect from 1 January 2019 for a trial period of one year, and is subject to review and change after completion of the trial period.
Subsidy amount = Amount of IIT paid on eligible personal income – the taxable value of eligible personal income X 15%
The subsidy will be calculated on the IIT differentials assessed on the following types of “eligible personal income”:
Qualified talent that derive eligible personal income from two or more locations within the GBA should apply to the Department of Finance of each city for a proportion of the IIT differentials due from income tax paid in that city
Foreign high-end talent and urgently-needed talent that meet all of the basic criteria below as well as one of the other criteria are qualified to apply for the subsidy:
Foreign high-end talent and urgently-needed talent must apply for recognition of their status and eligibility for the subsidy voluntarily and objectively. Detailed standards and operational measures will be subject to local practice to be adopted by authorities in the Nine Cities.
|Authorities for High-end Talent Assessment||The Department of Science and Technology (the Administration of Foreign Experts Affairs) of each of the Nine Cities|
|Authorities for Urgently-needed Talent Assessment||The Human Resources and Social Security Department|
|Authorities for Subsidy Application, Assessment and Distribution||
The application should be submitted to the local Department of Finance by:
The Nine Cities shall formulate, in light of actual conditions of the locality, local standards for talent identification and measures for subsidy distribution, and submit their standards and measures to the Provincial Department of Finance, the Provincial Department of Science and Technology (the Provincial Administration of Foreign Experts Affairs), and the Provincial Human Resources and Social Security Department for records by the end of July 2019.
These provincial authorities and the Guangdong Provincial Tax Authority will assist the Nine Cities to identify talent and distribute subsidies in a unified manner.
If an applicant is found to have violated laws or regulations, made false declarations, or committed other infractions, the individual’s enjoyment of the preferential IIT policy will be cancelled, and financial subsidies that have already been issued will be retracted. If a person is suspected of committing a crime, the individual will be transferred to the judicial authorities for criminal investigation in accordance with relevant laws.
Yue Caifa  No. 93 – Announcement on Interim Administrative Measures for the Individual Income Tax Differential Subsidy for Permanent Residents of Hong Kong SAR or Macau SAR working in Zhuhai Hengqin New District, issued by the Department of Finance of Guangdong Province will be repealed effective 1 January 2019.
General framework for talent identification confirmed and detailed implementation rules are required to move the application process forward – Circular 2 is designed to accelerate the implementation of the preferential IIT policy set out in Circular 31. It provides the framework for defining talent and the principles for declaration, both of which reflect the preferential policy’s requirement that foreign high-end talent and urgently-needed talent must be working or operating a start-up in the GBA.
As indicated in Circular 2, those who have met the basic criteria and also who are in possession of the Superior Talent Card or the Foreigner’s Work Permit are qualified to apply for the subsidy.
The following types of foreign high-end talent (not an inclusive list) are eligible to apply for the Permit3:
The following is a non-inclusive list of types of talent eligible to apply for the Card:4
The types of talent listed above are not the only one eligible to apply for the Permit and Card. For details, please refer to:
1 Notice on Full Implementation of Permit System for Foreigners Working in China (Wai Zhuan Fa  No. 40)
2 Notice by the People's Government of Guangdong Province Concerning the Issuance of the Measures for the Implementation of the Guangdong Superior Talent Card (for Trial Implementation) (Yue Fu  No.96).
At this stage, it is suggested companies review whether any foreign employees have obtained the Card or the Permit, or who are qualified for either the Card or the Permit, and then prepare these employees to apply for the subsidies. Other foreign employees need to wait for clarification from the Nine Cities of whether they can be included as urgently-needed talent under the cities’ definitions.
Detailed implementation rules are required to move the application process forward – Detailed guidance is needed on the types of industries and areas that will be considered as “key performers” for the Guangdong province. Input is also needed from each of the Nine Cities with regard to their criteria for identifying other urgently-needed individuals with special skills. The policies and measures that the municipalities will submit by the end of July are expected to address these issues. The policies will also elaborate on the specific application procedures, required documents, timeline, and other issues.
Simple calculation and significant tax relief – Circular 2 clarifies the calculation of the subsidy, which is based on IIT paid in excess of 15 percent of taxable income. This simple calculation method will help reduce application costs and make the assessment process easier for relevant governmental departments.
In the table below, we have selected the annual salary income levels of RMB 0.72 million, 0.96 million, and 1.2 million respectively and compared the effective tax rates before and after enjoyment of the GBA’s tax subsidies. We have also compared the effective tax rates between Hong Kong SAR and mainland China under the same annual salary income level.
Annual Salaries and Wages Income
|PRC Individual Income Tax Rate before Enjoying the GBA Subsidies （Effective Tax Rate）||PRC Individual Income Tax Rate after Enjoying the GBA Subsidies （Effective Tax Rate）||
Hong Kong SAR Salaries Tax Rate
（Effective Tax Rate）
1. The effective income tax rate estimates for salaries and wages in mainland China are based on assumptions for persons who are PRC tax residents, and the 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 2019/20 “Single / Separated / Divorced / Widowed” marital status tax rate table, and the estimates only consider the basic allowance – other allowances, deductions and tax reductions have not been taken into consideration.
3. We assume that the employees bear the taxes by themselves. Also, the exchange rate used for this calculation was RMB 1 = HKD 1.1308.
The comparison shows that the tax subsidies significantly reduce the tax burden in mainland China, basically bringing the expected tax burden in line with those in Hong Kong SAR. In this way, the tax burden for qualified foreign talent that works in the GBA will be effectively reduced. If these individuals’ IIT is borne by the companies, the subsidies will effectively reduce the companies’ labour cost.
In summary, KPMG in China suggests that companies consider the following aspects with regard to business development in the GBA:
KPMG will continue to update you on the latest GBA policy developments and share our observations and insights through alerts and workshops.
1 Caishui  No. 31 (“Circular 31”) – Notice on Preferential Individual Income Tax Policy for the Guangdong-Hong Kong-Macau Greater Bay Area, jointly issued by the Ministry of Finance and the State Administration of Taxation of the People’s Republic of China on 14 March 2019.
3 For detailed information about the Permit, please refer to the Notice on Full Implementation of Permit System for Foreigners Working in China (Wai Zhuan Fa  No. 40).
4 For detailed information about the Card, please refer to the Notice on the People's Government of Guangdong Province Concerning the Issuance of the Measures for the Implementation of the Guangdong Superior Talent Card (for Trial Implementation) (Yue Fu  No.96).
RMB 1 = EUR 0.13
RMB 1 = USD 0.15
RMB 1 = GBP 0.12
RMB 1 = TWD 4.51
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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