The Chinese Congress has released revisions to the individual income tax (IIT) law. More recently, the State Council has issued implementation regulations. Both the updated tax law and regulations became effective on September 1, 2011.
The main effect of the changes is moving the IIT burden to higher income individuals. Key changes to the individual income tax rules include the following items:
- The standard monthly deduction for purposes of calculating each individual's IIT was increased from 2,000 RMB to 3,500 RMB.
- The additional monthly deduction for foreign workers was reduced from 2,800 RMB to 1,300 RMB.
- The monthly IIT filing and payment deadline was moved from the 7th to the 15th day of the following month.
- All individual income taxpayers with an annual income of 120,000 RMB or greater continue to have an annual tax return requirement due March 31st.
- The new IIT law reduces the number of tax brackets and adjusts the amount of income within each bracket. Tax rates range from 3 to 45 percent. The change reduces the tax burden on lower-income taxpayers and increases the tax burden on higher-income taxpayers.
These changes will impact all expatriates working in China - and some quite significantly. As such, we recommend that you review compliance with the updated tax changes and the impact on your overall tax equalization costs.