On August 31, 2018, China’s National People’s Congress passed the draft amendments to the PRC Individual Income Tax Law (IIT), with the amendments becoming effective from January1, 2019.
New Definition for Tax Residence
One of the key revisions is the introduction of a “183-day” test to define tax residence for non-domiciled individuals.
(1) Resident individuals
(2) Non-resident individuals
Determining number of days residing in China
In determining the number of days non-domiciled individuals residingin China, if an individual is physically present in China for less than 24 hours, that day will not be counted as a day of residence in China. The new criteria provides lenient rules for counting the days in China and in fact could reduce non-domiciled individuals IIT burden in China.
The new regulations are expected to significantly impact foreigners in terms of their tax position and employment arrangements in China. In addition to the IIT issues, companies sending non-domiciled individuals to China should consider the corporate tax implications arising from any assignment arrangement. Hence, both employers and employees should prepare for the challenges brought by the new IIT Law.
If you require any assistance in relation to this, please contact Ms. Amie Cheung at amie.cheung@lccpa.com.hk