Tax updates – August 2023
With the Chinese government attempting to regain confidence, encourage investment and stimulate economic activity, the Ministry of Finance of the People’s Republic of China had made several announcements related to taxes of individuals and enterprises at the end of August.
The announcements included the following:
- An extension of the preferential income tax policy for foreigners in China.
- An extension of corporate income tax relief for small and low profit enterprises.
- Extension of the Greater Bay Area IIT subsidy.
- Extension of the Annual Declaration Preferential Exemption Policy.
- Extension of the preferential income tax policy for seafarers.
1.Extension of the preferential income tax policy for foreigners in China
What is the current policy in place?
According to China’s Individual Income Tax law expatriates who qualify as tax residents are required to pay income tax on all their China sourced income however the state administration of taxation and the Ministry of Finance have implemented a policy since the beginning of January 2019 which provides certain benefits for tax residents in China. The policy has officially been extended and will remain in effect until December 31st, 2027.
According to the policy foreign employees in China are entitled to the following tax deductions:
- Housing rent
- Children’s education expense
- Language training
- Home flight expenses
- Meals and laundry expenses
- Relocation expenses
Below is a more detailed breakdown:
The extension of the policy, which was set to expire on the 31st of December 2023, comes as relief to both foreigners working in China, as well as their employers. Effectively this tax policy allows expats to pay less taxes and have a greater take home salary.
2. Corporate income tax relief for small low-profit enterprises
As per the Guidelines for Preferential Tax Policies to Support the Development of Small and Mirco-enterprises and individual industrial and commercial households.
Who is this applicable to?
Small and low profit enterprises engaged in business activities that are not restricted or prohibited by the state and meets the following 3 conditions:
- The company must have an annual taxable income of less than RMB 3 million.
- The company must employ no more than 300 employees.
- The total assets must be less than RMB 50 million.
What is the change?
For small-scale and low profit enterprises the normal tax rate of 25% has been reduced to 5% until the 31st of December 2027. This means that when they declare their taxable income on a quarterly basis, they are eligible for a lower rate. Furthermore, if they suffer a loss, they are able to carry forward the loss and deduct it against the future taxable income, if any.
3.Extension of the Greater Bay Area IIT Subsidy
An announcement of the continuation of the preferential individual income tax policy in the Guangdong – Hong Kong – Macau Greater Bay Area, also known as the GBA, was made on the 25th of August by the Chinese Ministry of Finance.
The preferential policy which was set to come to an end on December 31st, 2023, has now been extended until 31 December 2027. This policy, which had been implemented in an effort to attract high-end foreign talent to the GBA, allowed for a portion of an employee’s tax payable to be subsidized by the local government.
For a complete overview of income tax in the GBA and how the subsidy works, please visit our article on Income Tax in the GBA.
4.Extension of the Annual Declaration Preferential Exemption Policy.
Annual IIT declaration If an individual has a total annual income of less than RMB 120,000 or upon settlement of IIT, the amount payable by the individuals is less than RMB 400, then the individual may be exempt from completing the annual declaration.
You can take a look at the official notice here: http://szs.mof.gov.cn/zhengcefabu/202308/t20230828_3904331.htm
5.Extension of the preferential income tax policy for seafarers.
Applicable to all seafarers who have sailed on a ship for 183 days a year. According to this policy, all wages and salaries must be included in the taxable income at a reduced rate of 50%. The continuation of this policy will remain in effect until the 31st of December 2027.
This is applicable to the crew of international voyage ships who are legally registered with the maritime administration department in China. The policy is also applicable to the crews of fishing vessels who are legally registered with the fishing management department.
Will we see more updates?
As China aims to regain investor confidence we may see more favorable policies for companies looking to invest. While the timing of these updates came as a surprise to many, we may still see greater policy shifts as the Chinese government strives to reach their economic growth target of 5% for 2023.
For all your tax queries, you can get in touch with us immediately and we can provide the assistance you need.
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