Library of Congress

Law Library of Congress

The Library of Congress > Law Library > News & Events > Global Legal Monitor

China: Individual Income Tax Law Revised

(Sept. 24, 2018) On August 31, 2018, the Standing Committee of the National People’s Congress (NPC) of the People’s Republic of China (PRC or China) revised the PRC Individual Income Tax Law (IIT Law). Taking effect on January 1, 2019, the new IIT Law brings significant changes to China’s individual income tax regime. (Zhonghua Renmin Gongheguo Geren Suodeshui Fa [Law of the People’s Republic of China on Individual Income Tax] (adopted by the National People’s Congress (NPC) on Sept. 10, 1980, last revised Aug. 31, 2018, effective Jan. 1, 2019) (in Chinese), NPC website; PRC Individual Income Tax Reform—Release of the Proposed Amendments, KPMG CHINA TAX ALERT (June 22, 2018).) The IIT Law has not been revised for seven years since the last revision was adopted in 2011. (Laney Zhang, China: Individual Income Tax Law Revised, GLOBAL LEGAL MONITOR (July 11, 2011).)

Highlights of the 2018 IIT Law are as follows:

183-Day Test in Determining Tax Residents

The new IIT Law modifies the individual tax-residence rule from the current one-year test to a 183-day test, making it easier for foreigners living in China to become a tax resident. According to the Law, tax residents are individuals who (1) have a domicile in China or (2) do not have a domicile but have resided in China for 183 days or more in a tax year. Tax residents are taxed on their worldwide income. (2018 IIT Law art. 1.)

Individuals having no domicile in China who do not reside in China or have resided in China for less than 183 days in a tax year are non-tax residents. Non-tax residents are taxed on their China-sourced income only. (Id.)

New “Comprehensive Income” and Revised Income Tax Brackets

The new IIT Law combines the following four existing categories of income into a new category of “comprehensive income”: salary and wages, income from providing services, author’s remuneration, and royalties. (Id. art. 3.)

The new comprehensive income is subject to a set of progressive tax rates ranging from 3% to 45%. (Id. art. 3.) The new rates are based on the existing tax brackets applicable to salaries and wages with some revisions: the lowest three brackets with applicable tax rates of 3%, 10%, and 20% are expanded, the 25% tax bracket is narrowed, and the highest three brackets of 30%, 35%, and 45% remain the same. (Id. sched. 1; Individual Income Tax Law of the People’s Republic of China (as revised June 30, 2011, effective Sept. 1, 2011) sched. 1.)

Personal Exemption Raised from RMB3,500 per Month to RMB60,000 per Year

Under the 2018 IIT Law, the personal exemption one may claim from the comprehensive income is 60,000 yuan renminbi (RMB) per year (about US$8,700). (Id. art. 6.) The existing personal exemption from salaries and wages, which took effect in 2011, is RMB3,500 per month (RMB42,000 per year, about US$6,100). (Individual Income Tax Law of the People’s Republic of China (as revised June 30, 2011, effective Sept. 1, 2011) art. 6.)

New Additional Deductions: Elderly Support Deductible

In addition to the existing deductions such as those for basic pension insurance and basic medical insurance, the new IIT Law includes additional deductions for the following expenditures: children’s education, continuing education, medical treatment for serious illness, housing mortgage interest, housing rentals, and elderly support. (2018 IIT Law art. 6.)

The deduction for supporting the elderly was added to the Law in the last review of the draft Law. The change was proposed by the NPC Constitution and Law Committee on the basis of “traditional Chinese virtues of respecting the elderly and filial piety and the increasing aging of the population.” In addition, the Committee stated that the majority of Chinese working-class families are single-child families, for which the burden of supporting the elderly is comparatively high. (Quanguo Renmin Daibiao Dahui Xianfa he Falü Weiyuanhui Guanyu Zhonghua Renmin Gongheguo Geren Suodeshui Fa Xiuzheng An (Cao’an) Shenyi Jieguo de Baogao [The NPC Constitution and Law Committee Report on Reviewing the Draft PRC Individual Income Tax Law] (Aug. 27, 2018) (in Chinese), NPC website.)