September 2023 / China

The Ministry of Finance ("MOF") issued on August 25, 2023 the Circular on Continuing the Preferential Personal Income Tax Policies in the Guangdong-Hong Kong-Macao Greater Bay Area ("GBA"), specifying that the relevant policies will remain in force until December 31, 2027.

The Circular clarifies that Guangdong province and Shenzhen municipality will offer subsidies to overseas (including Hong Kong, Macao, and Taiwan, the same below) high-end talents and talents in high demand who work in the GBA to cover the difference in personal income tax rates between the Chinese mainland and Hong Kong, and such subsidies are exempted from personal income taxes

As for the recognition and subsidy measures for overseas high-end talents and talents in high demand who work in the GBA, the relevant provisions of Guangdong province and Shenzhen municipality shall be implemented. The Circular will apply to the nine cities in the Pearl River Delta region, including Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqing.

For the purposes of further reducing taxpayers' burden, announcement is hereby made on individual income tax policies for subsidies and allowances for foreign individuals as follows:

Foreign individuals who satisfy the criteria for resident individuals may opt to claim special additional deduction for individual income tax, or opt to enjoy tax exemption policies for subsidies and allowances such as housing allowance, language class fees, children education fee etc. stipulated in the Notice of the Ministry of Finance and the State Taxation Administration on Several Issues Relating to Individual Income Tax Policies, the Notice of the State Taxation Administration on Issues Relating to the Implementation of Exemption of Individual Income Tax on Allowances of Foreign Individuals and the Notice of the Ministry of Finance and the State Taxation Administration on Levying and Exemption of Individual Income Tax on Housing and Other Subsidies Received by Foreign Individuals in Hong Kong and Macau, but shall not claim special additional deduction and tax exemption incentives concurrently.

The option made by a foreign individual shall not be changed within a tax year.

This Announcement shall remain effective until 31 December 2027.

The Ministry of Finance ("MOF") issued on August 28, 2023 the Announcement on Continuing the Implementation of the Individual Income Tax Policy for Annual Lump-sum Bonuses, saying that the current policy will remain in force until December 31, 2027 (Announcement n.30 of 2023).

According to the Announcement, if the annual lump-sum bonus obtained by a resident meets the provisions of Guo Shui Fa No.9 (2005) Document, it will not be included in the resident's current-year comprehensive income. Payable taxes will be separately calculated by multiplying the amount obtained by dividing the annual lump-sum bonus by 12 months with the applicable monthly tax rate after excluding the quick deduction amount as specified in the comprehensive income tax rates table attached to the Announcement. The specific calculation formula is as follows:

Taxable amount = Annual lump-sum bonus income × applicable tax rate - quick deduction

Residents who receive annual lump-sum bonuses may also choose to merge the bonuses into their annual comprehensive incomes to calculate their payable taxes for the year concerned.

Two Chinese government departments released on August 28, 2023 the Announcement on Continuing the Implementation of Policies Related to the Final Settlement and Payment of Individual Income Tax on Comprehensive Income, clarifying relevant matters.

The Announcement clearly states that for their annual comprehensive incomes obtained from January 1, 2024 to December 31, 2027 that are under 120,000 yuan but are subject to the final settlement and payment and tax supplementation, or have supplementary taxes of less than 400 yuan in the annual final settlement and payment, residents may be exempted from the final settlement and payment of individual income tax, except where their withholding agents have failed to comply with the legal requirement and withhold the prepaid taxes for them when they obtained their comprehensive incomes.

Source: Announcement n.32 of 2023