China - Important Chinese Individual Income Tax Updates

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In the last six months, there have been some very important developments with widespread implications in the area of Chinese Individual Income Tax (“IIT”). The State Administration of Taxation (“SAT”) of China issued Public Notice [2011] No.2 (“Public Notice 2”) on January 4, 2011 to announce a list of more than seven hundred tax circulars to be repealed or partially repealed. Included in the list are the following three noteworthy circulars related to IIT (collectively called “IIT Circulars”):

• Guoshuihan [2007] No. 1030 (“Circular 1030”) regarding share options of unlisted companies;
• Guoshuifa [1998] No.101 (“Circular 101”) regarding employer’s mandatory contributions to overseas pension and insurance schemes; and
• Guoshuifa [1993] No.45 (“Circular 45”) regarding income tax treatment of dividends and capital gains derived by foreign (corporate and individual) investors from B Shares and overseas listed shares of Chinese companies.

In addition, the SAT also issued another Public Notice in April 2011, Public Notice [2011] No. 27 (“Public Notice 27”), to relax the two-tier limitation for the application of the preferential treatment for share based compensation derived from listed companies under another earlier SAT circular, Guoshuihan [2009] No. 461 (“Circular 461”).