A new individual income tax (“IIT”) law has come into effect on 1 January 2019. The tax residency stipulations for non-domiciled individuals have been amended by the new IIT law.
Tax residents vs. non-tax residents
In practice, tax residency should be firstly determined for a non-domiciled individual’s initial IIT filing in a calendar year, as the tax consequences for tax residents and non-tax residents are different under the new law (as compared page down):
| Items |
China tax residents |
Non-tax residents |
| Definition |
Individuals who stay in China for 183 days or more in a calendar year |
Individuals who stay in e China for less than 183 days in a calendar year |
| Taxable income (Note) |
Both China and foreign sourced income |
China sourced income only |
| Comprehensive income |
Employment income, personal service income, author remuneration, and royalties |
Not applicable |
| IIT calculation for a tax year |
Annual basis |
Monthly basis |
| Monthly withholding method for employment income |
Accumulative income base |
Separate month income base |
| Applicable income brackets for monthly withholding |
Annual income brackets |
Monthly income brackets |
| Allowable deduction |
RMB 60,000 per year |
RMB 5,000 per month |
Note: The taxation provisions are summarised below:
| |
Income derived from China |
Income derived from overseas |
| Tax residency |
Duration in China |
Paid inside
China |
Paid outside
China |
Paid inside
China |
Paid inside
China |
Non-tax
residents |
~ 90 days |
Taxable |
Exempt |
Non-taxable |
Non-taxable |
Non-tax
residents |
90 days
~ 183 days |
Taxabe |
Taxable |
Non-taxable |
Non-taxable |
| Tax residents |
Less than
6 years |
Taxabe |
Taxable |
Taxable |
Exempt |
| Tax residents |
More than
6 years |
Taxable |
Taxable |
Taxabel |
Taxable |
Six-year rule
For non-domiciled individuals who have stayed in China for more than six consecutive years, their worldwide income is taxable, if they have stayed in China for 183 days or more in a calendar year from the seventh year onward. The “six year” refers to stays in China for 183 days or more in each of six consecutive years, without any single trip outside China for more than 30 consecutive days in any calendar year within the six years.
The best approach to avoid being taxed on worldwide income is to travel outside China for more than 30 consecutive days in a calendar year. Then, the existing six-year period can be broken up and a new six-year period will start being counted in the following year.
Non-taxable benefits for tax residents
Non-domiciled individuals meeting the China tax residency criteria during 2019 and 2021 can opt for the existing tax exemption policies (option a) or the new deductions policies (option b) as listed in the table below.
| Tax exempted benefits (Option a) |
|
New deductions (Option b) |
| Housing rental (no limitation) |
|
Housing rental (with limitation) |
| Children education fee (no limitation) |
|
Children education (with limitation) |
| Language training fee (no limitation) |
|
Continuing education (with limitation) |
| Home leave |
|
Housing loan interest |
| Meal and laundry |
|
Support for elderly |
| Relocation allowance |
|
Serious illness medical treatment |
| Travel expenses |
|
|
As of 1 January 2022, some benefits in option (a) will cease to be effective. Only non-domiciled individuals regarded as China tax residents can enjoy option (b). Each deduction item under option (b) is capped, as opposed to unlimited deductions in option (a). Hence, foreign individuals’ IIT costs are expected to rise at this point.
