Individual Income Tax Preferential Policies 2021
2021 marks the final year in which there shall be considerable preferential individual income tax policies for expatriate workers in China. Until December 31st, 2021, foreign individuals may enjoy preferential tax-exemption policies on allowances for housing subsidies, language training expenses and children's education expenses, they may also enjoy additional special deductions as applicable such as meal, laundry, or transportation expenses.
This year also marks the final year in which an annual bonus may obtain a preferential tax rate. The taxpayer can enjoy the preferential tax calculation provided for the year-end bonus, by dividing the amount of the bonus by 12 and determining the applicable tax rates, without including the bonus amount into the comprehensive income.
There are additional incentive Individual Income Tax policies valid in specific regions of China. In Hainan, to incentivize the development of the Hainan Free Trade port, “high skilled and urgently needed workers” are to be exempted from the portion of their individual tax burdens which exceed 15%. This incentive is applied as a tax reimbursement following the individuals tax consolidation the following year. This policy shall remain in effect until 31st of December 2024.
A comparable policy is in effect in the nine cities of the Greater Bay Area (GBA) in Guangdong, whereby eligible persons working in the GBA an IIT rebate. The rebate is calculated as the difference between the actual IIT paid by the applicant and 15% of their taxable income.
Tax Domiciliation
Non-domiciled individuals who reside in China for more than 6 consecutive years shall be taxed on their worldwide income starting from the seventh year if they remained resident in China in that particular year. The “clock” reset and commenced in 2019 for all non-domiciled individuals, so their residence status in previous years will not be counted towards the 6-year period.
If an individual has both Chinese and foreign sourced income it shall be apportioned based on the non-domiciled individuals' days of physical presence in China. Then the actual China IIT liabilities will be calculated on the apportioned income.