China’s New IIT Rules: A Guide for Employers

Published: February 2019

China introduced the biggest changes to its individual income tax (IIT) system since at least 2011 with the passing of a new IIT law in 2018. The new law brought forward a host of changes to individual taxation in China, including by revising tax brackets, expanding deductibles, and altering residency rules for foreign workers. The quick and unclear rollout has left individuals and businesses scrambling to make sense of the changes. To help foreign investors and taxpayers understand the ins and outs of the updates, this issue of China Briefing offers a comprehensive guide to China’s IIT reforms.

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In this Issue:

  • What You Need to Know About the IIT Reform
  • The IIT Reform’s Impact on Expatriates
  • How to Calculate and Pay IIT for Your Employees
  • IIT Calculation Methods for Lump-sum Annual Bonuses

Last year, China introduced the biggest changes to its individual income tax (IIT) system since at least 2011 with the passing of a new IIT law. The new law brought forward a host of changes to individual taxation in China, including by revising tax brackets, expanding deductibles, and altering residency rules for foreign workers.

In the process of introducing the new law, however, tax authorities caught many individuals and businesses off guard with the speed at which the changes were announced and implemented. The new tax brackets took effect on October 1, 2018 – only a month after the law was finalized – while the rest of the provisions came into force on January 1, 2019.

Not only did the brief transitional window give taxpayers little time to adjust, many of the details of the law were not made clear until additional circulars and announcements were released much later. The quick and unclear rollout has left individuals and businesses scrambling to make sense of the changes.

To help foreign investors and taxpayers understand the ins and outs of the updates, this issue of China Briefing offers a comprehensive guide to China’s IIT reforms.

We begin by explaining the most important features of the new IIT law, including the new tax brackets, income categories, special deductions, and residency rules. Next, we analyze the impact of the reforms on foreign expatriates, and then offer a guide outlining how to calculate and withhold IIT. Finally, we look at how the new law affects taxation of annual bonuses.

We hope this magazine serves you well in making the most of the personal taxation benefits China offers and helps your business seamlessly transition to the new IIT regime.


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