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China’s IIT Special Itemized Deductions for 2019 announced

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Category: Economy & Trade, Tax and Regulations
Impôt sur le revenu en Chine

The State Council announced special individual income tax deductions over the weekend

The Chinese IIT law has gone through significant changes over the past few months, with more details emerging. Phase 1 of the new IIT Law, including amendments in tax brackets and the minimum tax threshold, had already come into full force as of October 2018. However, not enough details on Phase 2 of the new IIT Law implementation had been disclosed until now.

An additional draft version for the IIT Law had been released on October 20th, 2018 – we’ve also covered in this post. However, final confirmation had not been released until now. The State Administration of Taxation announced that the State Council has now approved the revised Regulations on the Implementation of the Individual Income Tax Law of the People’s Republic of China.

Both the new IIT law and the amended regulations will take effect on January 1st, 2019.

Take a look at some of our previous posts: China’s Seven Priority Areas for Economic Work in 2019

Revised IIT Law as of now

The updated IIT Law had been passed by the Fifth Session of the Standing Committee on August 31st, 2018. Phase 1 of the update mainly raised the tax threshold from RMB 3500 to RMB 5000 and lowered tax brackets. The effect of this change will be reducing the tax burden for low-income earners. An anti-tax avoidance clause had been added to the law, while tax residency conditions has been revised. Namely, as of January 1st, individuals with an income, residing in China for a total of 183 days or more in a tax year, qualify as tax residents in the PRC and must pay tax in China according to the law.

List of Special Itemized Deductions

A novelty among the regulations is the introduction of special deductions to the IIT law system. The special deduction policy is new and covers many areas, having both an impact on Chinese nationals and foreign talents in China.
The areas covered by the new tax deductions are as follows:

  • Education of the children
  • Ongoing training
  • Treatments for serious illnesses
  • Mortgage interest
  • Rents
  • Care for the elderly

Special Itemized Deductions for 2019 (December announcement)

Compared to the draft policy issued in October, the final approved version of the special itemized deductions policy sees an increase on rent deduction and medical costs. Additionally, the deduction for rent is now more defined and assigns a specific deduction amount based on the population of the city/region.

IIT – a major contributor to Chinese economy

The revised regulations were publicly announced one day after The Annual Central Economic Work Conference was held in Beijing. The tone-setting idea of this year’s conference was that China would improve the spending power of its residents, mainly by implementing special tax-deductible expenditures.

The individual income tax was the third major contributor to the total tax revenue of China, preceded by the VAT and enterprise income tax. Throughout 2017, the country had collected RMB1.2 trillion worth of individual income taxes (nearly USD174 billion), which is about 8.3% of the total tax revenue.

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