China's New Tax Reform: What We've Learned

​Updated on August 6, 2018

​WHEN: The reform was passed last week and goes into effect January 1, 2019.

​WHY: China’s explanation for the changes include reducing the burden on China’s working class, closing loopholes in China`s personal tax regime and bringing the country closer to international norms. 
 

​THE FOUR BIG CHANGES

1. Residence Definition Change for Foreigners - Worldwide Income Tax
The previous rule stated that if a foreigner leaves the country for 31 days every 5 years, they are not considered a tax resident. Proposed changes state that if you live in China for over 183 days during the year, you are now considered a resident for tax purposes, whether or not you have a resident permit.

An Important Note: You will be given a tax credit based on the tax you have already paid on that income. If the tax you pay on the income is less than China's requirement, you will have to pay the difference to China. In the reverse case, where your taxes abroad are higher than China, you will not have to pay China tax.

2. Personal Deductions Allowed For Chinese Nationals and Work Permit Holders
If you have expenses such as rent, medical costs, or further education expense, you will be able to deduct that from your taxable income.

​Amendments propose raising the personal deduction on income to 60,000 RMB.

3. New General Tax Avoidance Law
This rule will make it very difficult for individuals to use trust or offshore structures to avoid tax.  
 
4. Tax Bracket Adjustment
​Current and Proposed Tax Bracket for Comprehensive Income (Monthly):

Source: Graphic Asia Briefing LT

 For example, in the past someone making RMB 20,000 per month was paying 25% tax rate. The proposed changes will reduce this individual’s income tax to 20%.

 For those Americans reading this, we recommend starting or continuing to contribute to your IRA to take advantage of the tax breaks there. To learn more about this, click here.

Final Word
In true Chinese form, these changes are broad sweeping and drastic. Some people, (US Citizens) may see little overall changes. But those who are used to paying no taxes (HK citizens) may need to make big structural changes to their personal finances. It is yet to be seen how effective this reform will be monitored, but we will keep you updated as we learn more.
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​If you have further questions or comments please reach out to [email protected]. 

O&G Capital does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.