China's Individual Income Tax Law (Amendment 2011) is set to take effect on 1 September 2011
On 30 June 2011, China's National people's Congress announced some major changes to the collection of individual income tax (IIT). These will undoubtedly have a large impact on employees but could also influence the payment practices of foreign-invested companies in China. The new rules will be implemented after the summer, on 1 September 2011. Some of the major changes are listed below.
1. The minimum threshold for IIT payments by Chinese employees has been raised from RMB2,000 to RMB3,500
The minimum threshold was raised from RMB800 to RMB1,600 in 2006, then to RMB2,000 in 2008. The new threshold means that Chinese employees who earn less than RMB3,500 (approx. USD540) will not pay any IIT, and employees that earn more will see their taxable income decrease as well. The biggest beneficiaries are low-income Chinese employees, though their employers who calculate wages on a net-basis will also see their costs reduced.
Despite suggestions in earlier drafts of these rules, the minimum threshold for IIT payments by foreign employees was not altered and remains RMB4,800.
2. The current 9-bracket progressive tax rate system is replaced by a 7-bracket system, with the 15% and 40% brackets removed
The level of IIT is calculated based on the individuals taxable income (after deduction of the first RMB3,500 or RMB4,800 Chinese employees and foreign employees respectively). The amendment will impact high-income earners, especially those earn approximate RMB19,000 or more. Companies that commit to a net salary in a contract will also be directly effected.
Below we compare the applicable tax rates before and after 1 September 2011:
|
New Regime (after 1 September 2011)
|
Old Regime (before 1 September 2011)
|
|
|
Monthly Taxable Income (i.e. after deductions)
|
Tax Rate (%)
|
|
Monthly Taxable Income (i.e. after deductions)
|
Tax Rate (%)
|
|
1
|
Income of RMB1500 or less
|
3
|
1
|
Income of RMB500 or less
|
5
|
|
2
|
That part of income in excess of RMB1500 to RMB4,500
|
10
|
2
|
That part of income in excess of RMB500 to RMB2,000
|
10
|
|
3
|
That part of income in excess of RMB4,500 to RMB9,000
|
20
|
3
|
That part of income in excess of RMB2,000 to RMB5,000
|
15
|
|
4
|
That part of income in excess of RMB9,000 to RMB35,000
|
25
|
4
|
That part of income in excess of RMB5,000 to RMB20,000
|
20
|
|
5
|
That part of income in excess of RMB35,000 to RMB50,000
|
30
|
5
|
That part of income in excess of RMB20,000 to RMB40,000
|
25
|
|
6
|
That part of income in excess of RMB50,000 to RMB80,000
|
35
|
6
|
That part of income in excess of RMB40,000 to RMB60,000
|
30
|
|
7
|
That part of income in excess of RMB80,000
|
45
|
7
|
That part of income in excess of RMB60,000 to RMB80,000
|
35
|
|
|
|
8
|
That part of income in excess of RMB80,000 to RMB100,000
|
40
|
|
|
|
9
|
That part of income in excess of RMB100,000
|
45
|
The following table compares the individual income tax liabilities based on the current and new tax tables. As can be seen, those high-income earners will be sharing a heavier burden under the new regim.
|
Income net of social security
|
Tax payble
(current rates)
|
Tax payble
(new rates)
|
Increase (decrease)
|
|
2,500
|
25
|
-
|
(25)
|
|
5,000
|
325
|
45
|
(280)
|
|
12,000
|
1,625
|
1,145
|
(480)
|
|
20,000
|
3,225
|
3,120
|
(105)
|
|
38,600
|
7,775
|
7,775
|
-
|
|
50,000
|
11,025
|
11,195
|
170
|
|
90,000
|
24,825
|
25,420
|
595
|
|
120,000
|
37,725
|
38,920
|
1,195
|
3. IIT filing deadline extended to within 15 days of the following month
Taxpayers and withholding agents now have until the 15th day of the following month to file IIT returns and settle the tax due. This makes the filing deadlines for IIT consistent with that of other taxes such as Enterprise Income Tax (EIT), Value Added Tax (VAT) and Business Tax (BT).
Individual Income Tax Law of the People's Republic of China (Revised in 2011) |
