On Friday, August 31st the Standing Committee of the National People’s Congress confirmed the amendments to the individual income tax law, which will fully take effect on January 1st, 2019. The main changes affect the tax thresholds, the tax brackets and new regulations for tax deductions.
The tax thresholds will be increased from RMB 3.500 to RMB 5.000 effectively. Taxable income will be calculated on an annual basis, not monthly as before. Annual Income is calculated by including all income from salary and wages, labor income, author’s remuneration and royalty income, from which a standard deduction of RMB 60.000/ year is subtracted, together with other applicable deductions.
The adjustment of tax brackets will mainly lead to a tax relief of individuals with low and medium income, since the range of the 3%, 10% and 20% tax brackets has been expanded, while the 25% bracket has been narrowed, as visible from the table below. The tax brackets for an applicable tax rate of 30, 35 and 45% remains the same as before. The adjusted tax brackets also reflect the change from monthly to annual calculation.
In the future, not only the housing fund (for Chinese citizens) and compulsory social insurance payments for pension, unemployment and medical insurance (for all tax payers) will be deductible from the taxable income, but a number of other items. These special deductions include children’s tuition expenses and adult education expenses, fees for medical insurance covering severe illnesses, elderly support expenses, interest paid on housing loans and housing rental expense. The limits for such deductions as well as the calculation methods remain unclear as of yet, since they are not regulated by the amended law but by further regulations to be issued by the State Council and Tax Administration.
The new law will become effective from January 1, 2019, with exception of the tax thresholds, which will already take effect from October 1st, 2018. The offical notice was released here. ECOVIS Beijing will continue to monitor and publish any new information about further regulation regarding the amended tax law as it becomes available.
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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