Guide - 26 January 2022

China Extends Several Preferential Tax Treatments

China has extended preferential tax treatment for the annual one-time bonus to the end of 2023.

On 29 December 2021, Premier Li Keqiang chaired the executive meeting of the State Council, in which measures to continuously reduce the burden of Individual Income Tax (“IIT”) taxpayers and relieve the pressure on middle and lower-income groups were extended beyond their previous expiration date.  

The meeting, in fact, decided to continue the implementation of some preferential policies for IIT: 

1. Annual one-time bonuses can be considered aside the salary income of the month in which they are paid and do not influence the cumulative income of the recipients. The policy offering the choice to separate the tax calculation according to the monthly conversion tax rate for the bonus amount will be extended until the end of 2023. 

2. Those taxpayers whose annual income does not exceed RMB 120,000 or whose annual tax filing amount does not exceed RMB 400 will be exempted from paying IIT. The policy will continue until the end of 2023. 

3. The separate tax calculation of equity-based incentives of listed companies will continue until the end of 2022. 

The three policies outlined above are expected to reduce the total tax burden on taxpayers by RMB 110 billion a year.  

What is the annual one-time bonus? 

According to the Notice of the State Administration of Taxation on Adjusting the Method of Calculating and Levying Individual Income Tax such as the Annual One-time Bonus Obtained by Individuals (Guo Shui Fa [2005] No. 9), the year-end bonus refers to the one-time bonus paid to employees by employers according to the annual economic benefits and the comprehensive assessment of employees' annual work performance. According to the assessment, the one-time bonus includes the annual salary raise paid by employers that implement the annual salary system and performance salary method. 

Please note that for employees who obtain various kinds of bonuses other than the annual one-time bonus, such as semi-annual bonus, quarterly bonus, overtime bonus, advanced bonus and attendance bonus, these shall be combined with the salary income of the current month and pay individual income tax in accordance with the provisions of the tax law. 

Tax calculation for the annual one-time bonus 

Based on the amount obtained by dividing the annual one-time bonus income by 12 months, the applicable tax rate and quick deduction shall be determined according to the monthly converted comprehensive income tax rate table (as shown below). The tax shall be calculated separately.

Levels Monthly Taxable Income Tax Rate (%)  Quick Deduction
 1  < 3,000  3   0 
 2  > 3,000 to 12,000   10   210 
 3  > 12,000 to 25,000  20  1,410
 4  > 25,000 to 35,000  25  2,660
 5  > 35,000 to 55,000  30  4,410
 6  > 55,000 to 80,000  35  7,160
 7  > 80,000  45  15,160

The calculation formula is: 

Tax payable = Annual one-time bonus income × Applicable tax rate - Quick deduction 

It should be noted that in a tax year, the separate tax calculation method of year-end bonuses can only be used once.

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Extension of the current non-taxable allowances regime for foreign individuals to 31 December 2023 

On 31 December 2021, with the aim of further reducing the burden on taxpayers, the Ministry of Finance and the State Administration of Taxation jointly released Announcement 43 on the continuation of preferential policies on individual income tax for foreign individuals. The Announcement reads as follows: 

According to the Notice of the Ministry of Finance and the State Administration of Taxation on the Connection of Preferential Policies after the Amendment of the Individual Income Tax Law (CaiShui [2018] No. 164), the implementation period of the preferential policies on subsidies for foreign individuals and the preferential policies on separate tax calculation for the term of office incentive of the heads of state-owned enterprises will be extended to December 31, 2023. 

Non-mainland Chinese residents (including Hong Kong, Macao and Taiwan) who can provide valid vouchers for housing rental, meal & laundry, relocation, home trip transportation, language training and children's education shall be exempted from individual income tax within a reasonable range after examination and confirmation by the in-charge tax authorities.

Category Requirements
Housing rental
  • Full rental deduction
  • Able to prove the authenticity of rental expenses, rental contract, valid fapiao
Meal and laundry
  • Meal and laundry expenses occurred in Mainland China
  • Expenses must be reasonable with fapiao
Relocation
  • Occur in form of reimbursement
  • Able to prove authenticity of the expenses with valid fapiao or receipts
Home trip transportation
  • Occur in form or reimbursement
  • The tax authority would generally accept up to two round trips per year
  • Transportation expenses only with valid fapiao
Language training
  • Language schools registered and located in Mainland China
  • Tuition fees with valid fapiao and supporting documents provided by the school
Children's education
  • Schools registered and located in Mainland China
  • Tuition fees with valid fapiao and supporting documents provided by the school

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