Feb. 14 – To resolve income discrepancies in China, the State Council recently released opinions on deepening income distribution reform (Guofa  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This preferential policy was originally enacted under the “Policy Issues Regarding Individual Income Tax (Caishuizi  No. 020)” released by the Ministry of Finance (MoF) and the State Administration of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.
The latest guideline also lays out other means that will be utilized to achieve the goal of diminishing income discrepancies in China, including:
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