New China IIT law to impact expats as well as nationals

The new Chinese IIT law concerning income tax passed at the end of August will impact expats as well as Chinese citizens.

The new law deals with changes to the way individual income tax is calculated and enforced, and is based on changing residency rules for expats, expanding deductibles and adjusting tax brackets. It’s set to be relatively good news for those in the low and mid-income bracket as it reduces their tax burdens, but isn’t such good news for expats and high earners. The new law, as well as a massive programme of tax cuts, is aimed at boosting consumption at a time where the economy is slowing and China is preparing for the next step in its trade war with the USA.

The new tax brackets and the deductions took effect yesterday, with the rest of the new personal taxation measures postponed until January 1 2019. The standard deduction on comprehensive income for resident taxpayers has been increased to RMB5,000 a month, and the new special deduction category includes children’s education expenses, further self-education expenses, serious illness healthcare costs, interest on housing loans, rentals and support for the elderly. Charitable donations can also be deducted, and the new tax brackets are weighted towards low and middle-wage earners.

Of special interest to expatriates living and working in China are the adjustments to the residency rules. Anyone who stays in the country for a minimum of an accumulated 183 days per year or more is now to be considered a tax resident and will pay the relevant amount of Chinese tax on their worldwide income. The new limit replaces the previous five-year rule stating expatriates were only liable to pay taxes in China on their worldwide income after they’d been resident for over five years. Also, tax will now be calculated on an annual basis, rather than the previously monthly basis.

Basically, the new tax structure is a significant change due to affect the vast majority of the expatriate community across China. Low and middle income earners will pay less tax, with all taxpayers able to utilise a broader deductibles range, but foreign workers may well have to endure greater scrutiny of their tax affairs.