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China Interim Measures for IIT Special Deductions

The Ministry of Finance and the State Administration of Taxation have issued on October 20, 2018 a draft of the Interim Measures for Special Additional Deduction of Individual Income Tax, unveiling the measures on special additional deductions from personal taxable income. The Draft will be available for comments until November 4, 2018.

Besides the standard deduction of CNY 5,000 monthly (equal to CNY 60,000 yearly), the interim measures provide additional deductions from taxable income for children’s education, continuing education, treatment of serious disease, the caring for the elderly, house loan interest and rents. Moreover, the special deductions shall be fair, reasonable, simple and practical in order to actually reduce the burden on the taxpayers.

The expenses for children’s education will be deductible for an amount up to CNY 12,000 yearly (or CNY 1,000 monthly). These expenses include pre-school education, compulsory education, high school, university and PhD.

The continuing education expenses incurred by the taxpayer for professional qualification can be deducted up to CNY 3,600 yearly, if the relating qualification is obtained during the year.

The expenses incurred for the treatment of serious diseases will be deductible for the portion exceeding CNY 15,000 (and limited to CNY 60,000).

The rental expenses incurred by the taxpayer in the city in which he works will be deductible for an amount limited to CNY 14,400 yearly (CNY 1,200 monthly) based on the city and the area in which the taxpayer lives.

Elderly care expenses refer to the costs incurred by the taxpayer for parents and grandparents aged 60 or above. These expenses would be deductible for an amount limited to CNY 24,000 yearly (CNY 2,000 monthly).

Loan interest paid for the purchase of the first home will be deductible up to CNY 12,000 yearly (CNY1,000 monthly) from commercial or housing fund loans.

Foreign individuals meeting the requirements for the special additional deductions can choose to continue to enjoy the current tax benefits related to deductible allowances or to deduct the special additional deductions according to the new Interim Measures.

A final version will be in force from January 1, 2019.

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