This is the 7th big amendment since the Individual Income Tax Law was implemented in 1980 and it will be a fundamental reform.
1. Compreheive taxation of different categories of income
The following categories, such as wages and salaries; labor remuneration; author remuneration; royalties, are taxed respectively and are subject to different pre-tax deduction standard and tax rates according to the current tax law. After the tax reform, these categories will be taxed in a comprehensive way for the first time.
2. An increase of the standard deduction
The monthly standard deduction will be increased from RMB3500 to RMB5000 (up to RMB60,000/year), most of the working-class will benefit from this reform.
3. New pre-tax deductions
Special items will be added to the pre-tax deduction for the first time, such as kid’s tuition, adult education, medical treatment of a serious illness, loan interest of purchasing an apartment, the rental expense of apartment etc.
It is not known yet if tax incentives for expatriates, for whom some items like children’s education were already exempted from income tax, will remain unchanged or will be adjusted accordingly.
4. Adjusted tax-rate table
The tax rate table will be optimized to alleviate the tax rate of the low-income groups
5. Punishment of tax-avoidance
An Anti-tax avoidance article will be included for the first time and the tax bureau will be entitled to make reasonable tax adjustments accordingly. The following activities will be the target:
a) not transferring property based on fair trade principle,
b) derive income in an overseas tax haven,
c) derive tax benefits by unreasonable business arrangement etc.
It is expected that the reform will bring several changes that need to be considered when entering the Chinese market. With its expertise, ECOVIS Beijing will support you in these issues along the way. If you have further questions about the tax reform in China, feel free to contact us any time.
Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: email@example.com
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