Since 2018, China has implemented a new round of individual income tax reform and established a comprehensive and classified individual income tax system that is fairer and more reasonable than its predecessor. It has further clarified the definition of and criteria for "resident individuals", adjusted and optimized the structure of tax rates, raised basic deduction levels, set up special deduction programs, fine-tuned the tax reporting system, put in place a credit mechanism, and introduced anti-tax avoidance clause for individuals.
An individual who is domiciled in China, or an individual who is not domiciled in China but has resided in China for an aggregate of 183 days or more within a tax year, shall be regarded as a resident individual. Income received by a resident individual from within China or overseas shall be subject to individual income tax in accordance with the law. In addition, according to the Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China, an individual who is not domiciled within the territory of China and resides within China for 183 days or more per year for less than six consecutive years shall be exempted from individual income tax for income derived from outside the Chinese territory and paid by entities or individuals outside the Chinese territory after filing with the competent tax authorities; if an individual is absent from China for more than 30 days in any year in which the individual resides in China for 183 days or more, the consecutive years when the individual has resided in China for 183 days or more shall be counted anew.
An individual who is not domiciled in China and does not reside in China, or an individual who is not domiciled in China but has resided in China for less than an accumulated 183 days within a tax year, shall be regarded as a nonresident individual. Income received by anon-resident individual from within China shall be subject to individual income tax in accordance with the law. According to the Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China, for an individual who is not domiciled within the Chinese territory and who has resided within China for no more than 90 days in a tax year, the income of the individual that is derived within China and paid by an employer outside China but not borne by the employer's establishment or place within China shall be exempted from individual income tax.
A tax year for individual income tax begins on January 1 and ends on December 31 within a calendar year. For comprehensive income in excess of the specified amounts, seven levels of progressive tax rates ranging from 3% to 45% shall apply; for income from business operation in excess of the specified amounts, five levels of progressive tax rates ranging from 5% to 35% shall apply; for income from interest, dividends or bonuses, income from leasing of assets, income from transfer of assets, and incidental income, a flat tax rate of 20% shall apply (A lower tax rate agreed upon under applicable tax treaties or tax exemption, if any, shall prevail).
For non-Chinese expatriates, the following categories of income are temporarily exempted from individual income tax: (1) dividends and bonuses obtained from foreign-invested enterprises; (2) wages and salaries paid to foreign experts in accordance with relevant regulations of China; (3) special deductions, or tax exemptions on housing subsidies, language training fees, child education expenses, etc., for non-Chinese expatriates who qualify as resident individuals, for a period from January 1, 2019 to December31, 2027. Regarding item (3), a non-Chinese expatriate chooses one option over the other may not make any change within the tax year.
Source: Foreign Investment Guide of the People's Republic of China (2024 Edition) issued by the Ministry of Commerce
