The Ministry of Finance and State Administration of Taxation Soliciting Public Opinions on the 'Revised Detailed Implementation Rules ("DIRs") of Individual Income Tax Law of the People's Republic of China' (the "Consultation Draft")
20 October 2018
The Ministry of Finance and State Administration of Taxation jointly released the Consultation Draft on the revised Detailed Implementation Rules of IIT Law of China to solicit public opinions. The Consultation Draft refined the rules of eligible taxpayers, the scope of income derived from China and taxable income. In addition, it newly provides detailed anti-avoidance rules and administrative rules in accordance with the revised IIT law. The deadline of soliciting public opinions is 4 November 2018.
The amendment involved all major provisions in the IIT Law. Key revisions are summarised as follows:-
- Introducing the "183-day" threshold in the assessment of the resident and non-resident status of individual taxpayers;
- Revising the income categories and implementing comprehensive taxation on wages and salaries, remuneration for labour services and manuscripts, as well as royalty income (i.e. "comprehensive income") as the first step towards the mixture of aggregate and scheduler taxation system;
- Optimising tax rates structure and adjusting tax brackets to reduce tax burden for taxpayers deriving comprehensive income and business operation income, especially for taxpayers at low and middle income level;
- Establishing the framework of a comprehensive deduction system by increasing the standard basic deduction and introducing specific additional deductible items such as children's education, continued education, major illness medical treatment, housing cost, and elderly care;
- Incorporating anti-tax avoidance rules, including arm's length principal, CFC rules and GAAR provision into the IIT law;
- Transforming the IIT collecting and administration from legal-person based system to natural-person based system through a set of new measures such as unique taxpayer identification number, information sharing and exchange among authorities, annual IIT reconciliation filing of resident taxpayers receiving comprehensive income, diversified obligations of withholding agents, etc.