On 31 August 2018, the Standing Committee of the National People’s Congress passed the amendment to reform PRC IIT Law (“the Amendment”). The Amendment was promulgated through the Presidential Decree No. 9, and will take full effect from 1 January 2019. The revised standard personal deduction and tax rates table will apply from 1 October 2018.
In addition to the key amendments which were discussed in Issues 14 and 16 of KPMG's China Tax Alerts issued in June and July 2018 respectively, the following are notable changes which were raised in the second review of the Draft and passed under the new law:
- Expenditures on supporting the elderly allowable for personal tax deduction: Considering the aging population and financial burden of supporting the elderly, the amendment allows expenditures on supporting the elderly to be tax deductible.
- Deemed expense deduction allowable for income from provision of independent personal services, author’s remuneration and royalties at 20% of gross income: Deemed expense at the rate of 20% of gross income will be allowed for income from provision of independent personal services, income from author’s remuneration and income from royalties. Income tax on author’s remuneration will be assessed on 70% of the net income after deducting the 20% deemed expenses.
- Charitable donations allowable for tax deductions: Charitable donations not exceeding 30% of one’s gross taxable income are allowable for tax deduction. Donations made to certain charities may not be subject to the 30% deductibility cap if approved by the State Council.
- Withholding agents shall furnish tax withholding statement to individual taxpayers: In order for individual taxpayers to lodge accurate annual tax reconciliation return, withholding agents shall furnish details of the amount of tax withheld, and other relevant information to individual taxpayers.
IIT Reform Simulator for Employees
KPMG China has launched an online tax simulator that enables individual taxpayers to simply compare their IIT liabilities before and after the reform is implemented based on the proposed amendments.
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