China: The new Individual Income Tax Law (“IIT Law”) of the People’s Republic of China

Individual Income Tax Law of the People’s Republic of China was amended at the seventh meeting of the fifth session of the 13th National People’s Congress Standing Committee on August 31, 2018, and it will be effected on January 1, 2019. 

The main content of amendments are: 

1. Calculating income tax in annual comprehensive income, more emphasis on Fairness and Justice 

a) The income from wages, salaries, remuneration for services, contributions and royalties previously taxed shall be levied in a comprehensive manner. 

b) Other incomes such as operating income, interest, dividends, and so on are still be levied separately. 

2. Increase the exemption amount of Income Tax, working class benefit most; 

a) The exemption amount of Income Tax of individual’s comprehensive income shall be adjusted from 3,500 Yuan to 5,000 Yuan (60,000 yuan annual ) before the levy. 

b) The changes of Income Tax’s exemption amount in the past. 1980 - ¥800 2005 - ¥1600 2007 - ¥2000 2011 - ¥3500 2018 - ¥5000 

3. Broaden the low tax interval, favor to middle-and low- income individuals.

4. Additional special deduction would be added to solve future worries.

1) Children’s education; 

2) Continuing education; 

3) Medical treatment of major diseases; 

4) Interest on housing loan; 

5) Housing rent; 

6) Support the elder; 

5. Adding the anti-avoidance clause, endow tax authorities with the power to regulate illegal tax avoidance activities. 

1) Within a tax year, a taxpayer who has lived in China for 183 days is a taxpayer whose income from both inside and outside China is taxable; 

2) In case of any of the following circumstances, the tax authorities shall have the right to make tax adjustments based on reasonable methods: 

a) Business between individuals and their affiliates do not conform to the principle of independent transactions and reduce the amount of tax payable by individuals or their affiliates without justifiable reasons; 

b) Enterprises which have been set up in countries (regions) where the actual tax burden is obviously low are under the control of individuals or enterprises jointly controlled by individuals and enterprises, have no reasonable business needs and shall not distribute or reduce the profits attributable to individuals. 

c) Other circumstances do not have reasonable commercial purpose to obtain improper tax benefits.

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