As of January 1, 2019, a new individual income tax system will beingformally implemented.  As an expatsworking or doing business in China, what should to know about the new law?

1. Who should pay and what income will be included?

1) Expats have resided in China foraccumulative 183 days or more in one tax year shall be resident individuals.  Resident individuals shall pay IIT on theirincome gained within or outside China.

2) Expats have resided in China for less thanaccumulative 183 days in one tax year shall be non-resident individuals.Non-resident individuals shall pay IIT on their income gained within China.

2 What kind of income should pay?

Under this new system, personal wages, salaries, remuneration forlabor services, income from author’s remuneration, and income from royaltyshall all be treated as the comprehensive income and will pay individual incometax after deduction of certain expenses.

However, Insurance indemnities shall be exemptedfrom the levy of individual income tax. However,Insurance indemnities shall be exempted from the levy ofindividual income tax. In this way, rich tax payer could leave wealth to their descendants without worrying about tax, by buying lifeinsurance with themselves as the insured and their descendants asbeneficiaries.

3. What expense could be deducted?

Six items of expenses related to people's livelihood will bededucted, including: children's education, continuing education, seriousillness medical treatment, housing loan interest or housing rent, support forthe elderly.  The tax payer could reportto the withholding agent about each item of expense or could report to taxbureau online directly.

4. How to pay?

All these IIT will be pre-withheld by the withholding agent (usually the employer if salary is involved, or whoever pay the above mentionedincome if other income is involved) on a monthly basis or whenever they pay theincome.  From 1st of March till 30th ofJune of next year, the tax-payer will report to tax bureau and filing annualreconciliation return.  But no furtherdetails about how to file it have been announced.

Till today, no extra explanation bas been made about if theoriginal tax concessions for expats still work? However, given that six itemsof expenses could be deducted according to the new law, there exists a possiblerevocation of the original tax concessions.

We will see.

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