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The new Individual Income Tax Law of the People’s Republic of China was implemented as of January 1, 2019. The income from wages and salaries, income from remuneration for labor services, income from author’s remuneration and income from royalties are combined into comprehensive income, to which progressive tax rates ranging from 3% to 45% shall apply, with the annual tax deduction before tax increased from RMB42,000 to RMB60,000. In addition, special additional deductions will apply to six types of expenditures, namely, education of children, continuing education, medical treatment of serious diseases, housing loan interest or housing rents, and support for elderly parents.
(1) From January 1, 2019 to December 31, 2021, foreign individuals who are resident taxpayers may choose to enjoy special additional deductions or continue to enjoy the current tax-exempt benefits on housing allowance, language training fee, and children education fee, which are mutually exclusive. Once chosen, it shall remain unchanged within a tax year.
(2) Since January 1, 2022, foreign individuals no longer enjoy tax-exempt benefits on housing allowance, language training fee, and children education fee, but may enjoy special additional deductions in accordance with relevant provisions.
On January 17, 2019, the Ministry of Finance and the State Administration of Taxation promulgated the Notice on Implementing the Inclusive Tax Deduction or Exemption Policy for Small and Micro Enterprises, which stipulates that:
(a) Small-scale VAT payers whose monthly sales are less than RMB100,000 (inclusive) shall be exempted from VAT.
(b) As for small meagre-profit enterprises, 25% of the annual taxable income no more than RMB1 million shall be taxed at a reduced rate of 20%, while 50% of the annual taxable income between RMB1 million and RMB3 million (inclusive) shall be taxed at a rate of 20%.
The small meagre-profit enterprises abovementioned refer to the enterprises meeting the following two conditions: a) not engaged in industries restricted and prohibited in China; b) having annual taxable income lower than RMB3 million, no more than 300 employees, and total assets lower than RMB50 million.
The implementation period of the notice is from January 1, 2019 to December 31, 2021.
