As you may know, some of the PRC IIT preferential policies were set to expire after 31 December 2023. Both of the withholding agents and taxpayers including foreign individuals are focusing on the tendency of these policies which may impact the tax burden.
Since August 2023, a series of extension of PRC IIT preferential policies has been jointly announced by the Ministry of Finance (MOF) and State Taxation Administration (STA).
We now summarize the policies which are related to foreign individuals’ income tax as follows, and provide our recommendations for your reference.
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In addition, the deductible amount of three specific itemized deductions (i.e. Elderly Care, Children Education and Infant & Toddler Care)has been increased according to the STA Public Notice [2023] No. 14, which is effective from 1 January 2023.
If the foreign individuals are China tax residents but their employers do not implement non-taxable benefits-in-kind scheme, such increases could help them optimize their PRC IIT burden by enjoying these deductions, if applicable. Such preferential treatment is long-term effective. Details are as follows:
Elderly Care Deduction: increase from CNY2000 to CNY3000 per month.
Children Education: increase from CNY1000 to CNY2000 per month per child.
Infant & Toddler Care: increase from CNY1000 to CNY2000 per month per child.
Our Recommendations:
01
From PRC IIT compliance's perspective, the withholding agents should pay attention to the tax record-filing requirements by the relevant tax authorities for their non-taxable benefits-in-kind schemes as well as the equity incentive plans.
Especially, as the year-end is approaching, HRs should be well prepared for documentation submissionif no record-filing is mandatorily required during the tax year. If the company does not implement the non-taxable benefits-in-kind scheme, HR could remind foreign individuals who are China tax residents to fill in the information of qualified additional itemized deductions and enjoy the pre-tax deduction through monthly withholdings or annual IIT reconciliation filing of the comprehensive income.
02
Foreign individuals may change their China tax residency status during a tax year. Most of the above IIT preferential policies are applicable to China tax residents. If foreign individuals’ China tax residency status changes, they should perform relevant tax adjustments and IIT due or refund may occur. HRs could remind foreign individuals to count their China residence days and re-assess their China tax residency status according to relevant tax policies as well as the avoidance of double taxation treaties, and take necessary actions before the year-end.
03
From practical perspective, so far only Shenzhen and Huizhou have completed the applications for the IIT subsidies for tax years 2021 and 2022, whose relevant criteria and requirements on employer and taxpayer have changed a lot. Employers and taxpayers in other cities should pay attention to the implementation guidance announced by relevant authorities, in order to assess the qualification and catch up the application due date.
Hope the above is helpful to you and if you have any question or need any assistance, you may contact your FSG account manager.
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