China published Draft Amendment to the Individual Income Tax Law

published on July 31, 2018


On June 29, 2018, the Chinese government published the Draft Amendment to the Individual Income Tax Law ("Individual Income Tax - IIT"), and started to seek comments and suggestions from the public.



Although not officially implemented, the Draft Amendment has already raised nationwide attentions, as this revolutionary change might mark a new era of IIT in China. The major proposals in the Draft Amendment related to foreign expatriates in China are summarized as follows. It is worth to note that some of the regulations are planned to be implemented from October 1, 2018, and the whole amendments are planned to be implemented from January 1, 2019. The Draft Amendment is now still under discussion and not officially confirmed.


Regulations planned to be implemented from October 1, 2018

1. Tax Rate

According to the Draft Amendment, the IIT calculation mode will be changed to the "General Income Mode", in which the incomes derived from salary, labor services, author's remuneration and royalty will be taxed on a consolidated basis. The tax calculation will also be changed from monthly basis to annual basis.


The new tax rate for this so-called "general income" is as follows:



Annual Taxable Income (RMB)

Tax Rate (%)

10 - 36,0003
236,000 - 144,00010
3144,000 - 300,00020
4300,000 - 420,00025
5420,000 - 660,00030
6660,000 - 960,00035
7above 960,00045


This calculation mode only applies to the foreign expatriates recognized as Chinese resident taxpayers. For those who are classified as non-resident taxpayers, IIT is still calculated by month or by time. Their payable tax amount shall be calculated according to the monthly income converted from the annual income provided in the table above.


2. Standard deduction amount

The standard deduction amount for foreign expatriates will increase from RMB 4,800 to RMB 5,000 per month.


Policies to be further clarified

1. Annual bonus

At present, one-time annual bonus can be divided by 12 to determine the applicable tax rate. As it is not clarified in the Draft Amendment, it is not clear whether this preferential policy will still remain valid under the new IIT scheme.


2. Special extra deductions

Apart from special deductions which include social insurances, the Draft Amendment also introduces "special extra deductions", which refer to expenses for children's education, continuing education, medical treatment for major diseases, interest on housing loans, house rents, etc. However, detailed regulations regarding the special extra deductions such as the definition of these items and limitations on deductible amount are not mentioned in the Draft Amendment. In addition, the special extra deductions are only applicable to Chinese resident taxpayers.


3. Allowance

At present, foreign expatriates could enjoy tax-exempted benefits on reimbursement basis, such as housing allowance, meal allowances, home flights, children's education expense, etc.. As these policies are not stipulated in the Draft Amendment, it is still to be confirmed whether they will remain valid under the new IIT scheme.


4. Definition of resident taxpayer

Currently, foreign expatriates who have no residence in China and live in China for more than 1 year are recognized as resident taxpayers. In addition, foreign expatriates that stay in China for more than 5 years will be taxed for their worldwide income.


In the Draft Amendment, it is explicitly stipulated that any individual who has a domicile in China or who has no domicile but has stayed in China for 183 days or longer in a single tax year is considered as Chinese tax resident and shall pay IIT on any income derived from within and outside China. Also, as mentioned before, the characterization of resident or non-resident taxpayer also determines the tax calculation method and the application of special extra deductions.


However, as this policy is still under discussion, and the taxation of overseas income for resident taxpayers is not stipulated, it is still to be confirmed whether there will be changes or amendments to the current version.



Except the policies that will be surely to be implemented in October 2018, other policies in the Draft Amendment are still not officially confirmed. It is suggested that the expatriates in China shall prepare for the upcoming changes based on current information while waiting for the official announcement of the new regulation. We will keep you updated with the latest developments.



Steve Qin

Associate Partner

+8621 6163 5331

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Kai Kang

+8621 6163 5200

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