China's New Individual Income Tax Rates
Yeung, Desmond, The China Business Review
As part of its drive to reform China's tax system, Beijing announced the amended Individual Income Tax Law on October 31, 1993. The new law replaces the original Individual Income Tax Law of 1980, which applied to foreigners, and the Individual Income Adjustment Tax Law of 1986, which applied to Chinese citizens, who basically had not paid income tax since 1949.
The new law, which becomes effective January 1, 1994, seeks to eliminate tax differentials on employment income between foreigners and Chinese citizens by establishing one rate table. The law will apply to most forms of personal income, including income from business operations of self-employed Chinese entrepreneurs as well as from contracts, sub-contracts, leases, and sub-leases.
Under the new law, most employees, whether local or foreign, will pay less in taxes unless they fall into the highest income brackets. This situation will be welcomed by many foreign investors, since most have tax protection schemes or pay Chinese income taxes for their expatriate and local staff. Most self-employed Chinese entrepreneurs will also find their tax burden lessened--or at least not changed--under the amended law.
The implementing regulations of the new tax law, currently in the draft stage, will provide a more detailed interpretation of the law. The regulations, not yet finalized as be CBR goes to press, will presumably contain language like that found in the implementing regulations for the 1980 and 1986 laws.
THE OLD SYSTEM...
Until now, foreigners have been subject to Chinese taxes on all income earned from permanent establishments in China, such as representative offices and foreign-invested enterprises (FIEs). Foreigners whose salaries or employment are not derived from a permanent establishment in China but who work there on a traveling basis are treated as temporary visitors. A person in this category is subject to Chinese income taxes on the income attributable to his presence in China if that presence exceeds 90 days in a calendar year. If the individual is from a country that has signed a double-taxation avoidance treaty with China--such as Australia, Canada, France, Germany, Japan, the United Kingdom, and the United States--the number jumps to 183 days per year. The new law makes no changes to these provisions, although it introduces the concept of "domicile." How this concept is to be applied, however, will not be clear until the implementing regulations are issued.
Under both the old and new systems, salaries, wages, and cash allowances of full-time employees in China are generally subject to income tax. Expenses paid by the employer or incurred by an employee on a reimbursement basis, such as traveling expenses, housing allowances, and meal and laundry expenses, are not taxable and are deductible by the employer.
Individual deductions under the old law were Y800 for foreigners, which means tax was payable on all earnings above that threshold. Local Chinese were permitted to deduct Y400-460 per month, plus additional allowances depending on area of residence Tax returns had to be submitted and payments remitted to the tax bureau on a monthly basis; there will be no change in these procedures under the new law.
...AND THE NEW
The new law creates one set of income tax rates for both expatriate and local employees, though each are entitled to different deductions (see Table 1). Local Chinese citizens are now granted a deductible of Y800 per month, while the figure for foreigners has not been announced, but is expected to be in the region of Y4,000. The scope and amount of the deductible will be decided by the State Council based on such factors as renminbi exchange rate fluctuations and presumably will be published in the implementing regulations. Chinese citizens who derive taxable income from overseas will also be entitled to the larger deduction.
CHINA'S NEW INCOME TAX …
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: China's New Individual Income Tax Rates. Contributors: Yeung, Desmond - Author. Magazine title: The China Business Review. Volume: 21. Issue: 1 Publication date: January/February 1994. Page number: 43+. © U.S.-China Business Council Mar/Apr 2009. Provided by ProQuest LLC. All Rights Reserved.
This material is protected by copyright and, with the exception of fair use, may not be further copied, distributed or transmitted in any form or by any means.