Significant changes to Chinese individual income tax proposed

11 Jul 2018

Planned changes to Chinese Individual Income Tax law could mean foreign citizens living and working in China will become resident for tax purposes if they live in the country for just 183 days.

Under current rules individuals with foreign citizenship who are not domiciled in China but are resident for a full year are considered resident for tax purposes. Someone who is absent from China for more than 30 days at a time or 90 days in multiple trips in a year is not considered a Chinese resident for tax purposes for that year.

The proposed changes to the IIT rule will mean that any individual with foreign citizenship or residence status who isn’t domiciled in China but lives in the country for 183 days will be considered resident for tax purposes and will have to pay Chinese income tax on their worldwide income. Jacqueline Shek, Executive Director of ZEDRA Hong Kong said: “This proposed change means Chinese nationals who have taken up foreign citizenship will still have to pay Chinese income tax if they live in China for six months – halving the length of time from the current rules”.

There are other proposed changes including introduction of Controlled Foreign Company rules for IIT; this will affect the use of offshore personal investment companies. There is also a proposed new rule which would mean banks have to give the tax authorities details of taxpayers’ accounts. “All these planned changes demonstrate a focus by the Chinese tax authorities”, says Jacqueline Shek. “It is essential that wealthy foreign citizens in China get good advice to ensure their wealth planning solutions are responsive to the proposed tax changes”.

If the changes are approved by the National People’s Congress Standing Committee (NPCSC) they will take effect from January 1, 2019.