March 2019 / China

On 23 March 2019, China (People's Rep.) and Italy signed an income tax treaty in Rome. Once in force and effective, the new treaty will replace the China (People's Rep.) - Italy Income Tax Treaty (1986). Further developments will be reported as they occur.

The Ministry of Finance, the State Administration of Taxation and the General Administration of Customs released on March 21, 2019 the Announcement of Policies Related to Deepening Value-added Tax Reform, saying the unprecedented reductions of VAT rates will begin from April 1, 2019. According to the announcement, VAT rate for general taxpayers in some sectors will be lowered to 13% from 16%, and to 9% from 10% for some other sectors. Taxpayers will pay VAT at a rate of 9% for agricultural products they purchased, down from 10% in the past. If taxpayers buy agricultural products for production or processing purposes, their VAT rate will be cut from 13% to 10%. From April 1, 2019 to December 31, 2021, taxpayers in the production and service industries shall enjoy 10 percent additional input VAT deduction.

Five authorities, lead by the Ministry of Commerce, on March 19 promulgated the Circular on the Conduct of Joint Report on Foreign-invested Enterprises' Investment and Operation in 2019. According to the circular, foreign-invested enterprises set up and registered within China shall log in to http://www.lhnb.gov.cn/ between April 1 and June 30 this year to provide information on their investments and operations for 2018. Data and information so provided will be shared among the commerce, finance, taxation, statistics and foreign exchange authorities. Foreign-invested enterprises set up in 2019 are required to do the filing from the next year.

Premier Li Keqiang chaired a State Council executive meeting on March 26, 2019 and made arrangements on reducing social insurance fee rates and clarified specific supporting measures. The meeting required local governments to reexamine and lower the upper- and lower-limits of the social insurance base and extend the policy of reducing the premium rates for unemployment and work-related injury insurances for one more year, to April 2020. If a region's industrial injury insurance fund is enough to cover payments for 18-23 months, it can cut the premium on industrial injury insurance by 20%; the reduction can reach 50% if the fund is enough to cover payments for 24 months or longer.

1. 6-year Rule The new period of stay will be counted from 2019. It means that all expats’ income will be IIT exempted until 2025. Foreigners who will spend in China more than 183 days each year from 2019 to 2025 and who will never leave P.R.C. for more than 30 days in a single trip, in a calendar year, will be subjected to IIT on their overseas income. A single trip of more than 30 days, during the 6 years period, will allow the employee to restart the calculation. 2. Calculation of stays in China If an expat stays in China less than  24 hours in a day (from 0 to 24), it will not be counted as a day in China. 3. Expats shall predict their days in China at the beginning of the year and declare taxes according to their position: tax resident or not tax resident 4. Foreigners with no Withholding agent in China For expats who has no salary paid in China, is it possible to declare IIT by themselves or authorize domestic employer (who is a related party of the foreign company paying salary to them) to declare IIT on their behalf. 5. Preferential IIT for non-tax resident The preferential IIT rate for annual bonus is available for non-tax residents. However, the rate is adopted according to the total amount divided by 6 (to a tax resident, it is divided by 12). 6. IIT calculation method and how to evaluate income from China or overseas have been clarified

		Domestic Salary		Overseas Salary		Note
	Days	Paid in China	Paid outside China	Paid in China	Paid outside China
	Less than 90 days (183 days under the Treaty)	IIT	exempted	No IIT	No IIT	Non-Tax Resident
	90 days to 183 days	IIT	IIT	No IIT	No IIT
	183 days to 6 years	IIT	IIT	IIT	exempted	Tax Resident
	More than 6 years	IIT	IIT	IIT	IIT

7. Equity incentives calculation method for expats has been clarified Income from equity incentive in a calendar year can apply the preferential IIT rate and the calculation method for bonuses.

The Ministry of Finance and the State Administration of Taxation recently issued the Announcement about Length of Residence in China for Individuals without Residence Within the Territory of China, and the Announcement about Individual Income Tax Policies for Non-resident Individuals and Individuals Without Residence. According to the announcements, the annual aggregate of 183 days or more of residence in China for six consecutive years begins from the start of 2019, and any days of residence in 2018 and prior years are not included.