The new China Individual Income Tax (IIT) Law and its impacts on overseas Chinese

The new China Individual Income Tax (IIT) Law may have impacts on Chinese nationals who have overseas income and their Chinese employers.

In brief

• The fifth session of the 13th National People’s Congress Standing Committee passed the revisions to the China Individual Income Tax (IIT) Law on 31 August 2018. The effective date of the New IIT Law is 1 January 2019. 
• We will discuss the issues which may have impacts on Chinese nationals who have overseas income and their Chinese employers in the following.

The new China Individual Income Tax (IIT) Law implies more strict registration requirement. Chinese employer needs to register outbound employees’ information before the end of February of the following year. It also means increased employer obligations as follow:

• Assist employee with Annual Tax Reconciliation (ATR) filing
• Provide compensation and tax statement to employees for ATR filing purposes
• Provide employees with necessary ATR filing guidance

From the employee’s perspective, Chinese nationals are generally considered Chinese tax residents for IIT purpose. Chinese residents in general are subject to IIT on their worldwide income.

1. New tax calculation formula and filing forms

Chinese tax residents who have overseas income are required to file ATR form B and several schedules to report global income to China (except several specific scenarios). The tax calculations became more complex.

2. More requirements for foreign tax credit claim

Foreign tax credit is allowed on form B. But more documents (e.g. foreign tax payment certificate) are required to enjoy the tax credit.

3. Short filing and payment period

The filing and payment period for ATR is 1 March to 30 June the following year with NO extension allowed.

4. Counter filing

Form B can be only lodged at the counter of the local tax authority.