New Individual Income Tax Regulations – Effective from September 1, 2011

After a long and, at times, heated debate the Standing Committee of the National People’s Congress (NCP) has passed new revisions to China’s individual income tax (IIT) law, increasing the amount of deductable income for Chinese nationals.

The revision of the IIT law has received great attention during the public solicitation period, where people have argued a further increase in the amount of deductable income than to the originally proposed RMB 3,000. The result of the 240,000 responses to the solicitation was an increase in the deductable income from RMB 2,000 to RMB 3,500 and a reduced tax rate for the lowest income earners from 5 % to 3 %.

The detailed revisions made to the IIT law are as follows:

-          IIT on income from salaries is subject to progressive tax rates, which range from 3 % to 45 %.

-          For Chinese nationals, the amount of taxable income from salaries equals the amount that is left after deducting RMB 3,500 from one’s monthly salary.

The NPC also agreed to reduce IIT tax rate levels from nine to seven, as suggested in the last two proposals. Additionally, the IIT filing period extends from 7 days to 15 days in the following month. The revised tax rates can be seen in the table below:

Foreigners will be subject to the new tax rates when the revised IIT law becomes effective from September 1, however, the exemption threshold for foreigners will remain at 4.800 RMB.

Although high income earners, above RMB 38,600 per month (after deduction of social welfare contributions), will experience a slight increase in the tax burden under the new IIT rates, the majority of tax payers can look forward to keeping a higher percentage of their salaries. The new tax system aims at increasing the disposable income for low and middle income earners in order to spur domestic consumption and leverage the high income distribution inequality between rich and poor.

If you have questions regarding the new IIT regulations, please contact:

Ida Li - Beijing office: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Eason Wang - Shanghai office: This e-mail address is being protected from spambots. You need JavaScript enabled to view it