China to Cancel Preferential IIT Policy for Foreigners

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Feb. 14 – To resolve income discrepancies in China, the State Council recently released opinions on deepening income distribution reform (Guofa [2013] No.6, hereinafter referred to as the “Opinions”). One of the goals laid out in the Opinions is strengthening tax collection on high incomes and improving the tax system, including cancellation of the preferential tax policy that exempted dividend and bonus incomes received by foreign individuals from individual income tax (IIT).

This preferential policy was originally enacted under the “Policy Issues Regarding Individual Income Tax (Caishuizi [1994] No. 020)” released by the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) in 1994. Pursuant to the issuance of the Opinions, the MoF and the SAT are expected to draw up regulations in the upcoming months subjecting foreigners to the regular 20 percent IIT rate on income derived from investment in foreign-invested enterprises (FIEs) in China. Continue reading…

China Clarifies Individual Income Tax for Work-Related Injury Compensation

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May 31 – In order to fully implement the “Regulation on Work-Related Injury Insurances (Order of the State Council No.586, hereinafter referred as the ‘Regulation’),” the Chinese government issued the “Notice on Issues Regarding Individual Income Tax for Compensations of Work-Related Injury Insurances (caishui [2012] No.40, hereinafter referred as the ‘Notice’)” on May 3, 2012 in accordance with the income tax exempt items in Article 4 of Individual Income Tax Law of the People’s Republic of China. Continue reading…

IIT Calculation for Hong Kong and Macau Residents’ Mainland-Derived Income

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May 29 – In order to avoid ambiguities surrounding the double taxation of individuals working between Mainland China and the special administrative regions of Hong Kong and Macau, the State Administration of Taxation (SAT) issued the “Notice on Questions Regarding Tax Arrangements of Individual Employees Working in Both Mainland China and Hong Kong or Macau (SAT Notice [2012] No.16, hereinafter referred as ‘Notice’)” in April, clarifying the calculation of individual income tax (IIT) for related personnel. Continue reading…

Severance Pay Subject to Individual Income Tax in China

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May 18 – On May 14, officials from China’s State Administration of Taxation answered questions on several hot issues regarding ambiguities in tax payments, clarifying that individual income tax should be paid when an employee receives compensation for termination of their contract.

According to the government officials, if the one-time compensation offered to an employee after the termination of the contract does not exceed three times the local average annual salary of the previous year, the compensation is tax exempt. However, if the amount exceeds this threshold, then the exceeding part of the compensation is subject to individual income tax payment. Continue reading…

China’s Ministry of Finance Releases Tax Revenues for Q1 2012

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Total tax revenues near RMB2.6 trillion for Q1 2012, but growth is significantly slower than Q1 2011

By Xiaolei Gu

Apr. 25— China’s Ministry of Finance released the country’s tax revenues for the first quarter of 2012 on Tuesday, with highlights including year-on-year (y-o-y) growth in total revenues of 10.3 percent to RMB2.59 trillion (US$410 billion).

However, the 10.3 percent y-o-y growth rate marked the slowest pace recorded in the past three years – down 22.1 percentage points from the year-on-year growth rate recorded in the first quarter of 2011. The growth rates of domestic VAT, excise tax, business tax and corporate income tax dropped 17.8 percent, 6.4 percent, 18.7 percent and 17.4 percent, respectively, compared to the y-o-y growth rates seen in the first quarter of 2011. Continue reading…

China-Syria DTA Takes Effect

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Nov. 24 – The “Agreement between the Government of the People’s Republic of China and the Government of the Syrian Arab Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (China-Syria DTA)” – signed on October 31, 2010 – came into effect on September 1, 2011, according to the State Administration of Taxation.

The China-Syria DTA – which specifies the definition of a permanent establishment (PE), lists the taxation on different types of incomes, and clarifies the exchange of tax information – will apply to incomes obtained by both countries’ residents from January 1, 2012. The details of the agreement can be found below. Continue reading…

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