China proposes significant changes to its individual income tax regime

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The People’s Republic of China (China) has proposed significant changes to its individual income tax regime (IIT). These changes, if passed, will signify an overhaul of the current IIT system. Proposed revisions will affect multinational law firms.

In detail

Proposed revisions that will affect multinational law firms include:

  • Revising the criteria for determining tax residency status;
  • Implementing a mixture of aggregate and schedular taxation system to replace the current schedular taxation system;
  • Amending the tax rates and taxable income brackets;
  • Increasing the standard basic deduction and introducing additional specific deductible items;
  • Introducing a unique taxpayer identification number; and,
  • Introducing an anti-tax avoidance rule.

For example, in determining the tax residency status of individuals that are not domiciled in China, the physical presence threshold would be tightened from ‘“one full year” down to “183 days” spent in China. Therefore, if this standard is adopted, an individual without domicile in China who has spent 183 days or more in country during the relevant tax year would be considered a “China resident” for IIT purposes. It is still unknown whether the current 5-year threshold will be kept or additional criteria being imposed.

Similarly, if adopted, tax rates and brackets would be adjusted to reduce the overall effective tax rates for lower-earning income taxpayers.

The standard basic deduction is proposed to be slightly increased from RMB 3,500/month (for Chinese nationals) or RMB 4,800/month (for foreigners) to RMB 5,000/month (RMB 60,000/year). Moreover, the standard basic deduction would be applicable for computing the IIT payable on taxable comprehensive income. Additional proposed deductions would include costs for dependent(s) education, major illness & medical expenses; continuing education; and/or a mortgage interest/rental expense. With the introduction of additional specific deductible items, the existing non-taxable allowances that are only applicable to foreigners (e.g. housing, tuition fees) may be abolished.


It is expected that the new IIT law will be implemented in two phases, with effective date of October 1, 2018 for Phase 1 and effective date of January 1, 2019 for Phase 2.

Contact us

Lin Fang

Partner, PwC China

Rebecca Lai

Partner, PwC China

Karen LoDico

Tax Partner, PwC US

Gary M. Pogharian

Partner, PwC US

Carole Symonds

Partner, Law Firm Services Tax Leader, PwC US

Gregg Sincoff

Tax Managing Director, PwC US

Nancy Regan

Tax Director, PwC US

Ran Wei

Director, PwC US

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