On 1 Sep 2011, the new version of Individual Income Tax Law of the People’s Republic of China (2011 Revision) became into effect and the taxable income is calculated monthly by subtracting a standard monthly deduction from income. The new income tax rules increase the standard monthly deduction from RMB2,000 to RMB3,500.
In an attempt to streamline tax deadlines for businesses, which withhold income taxes for employees, the 2011 Income Tax Law and the 2011 Implementing Regulations move the filing and payment deadline for monthly income tax returns from the seventh day of the following month to the fifteenth day of the following month, the same as for Enterprise Income Tax, Business Tax, and Value-Added Tax. According to statistics released by China’s National Statistics Bureau, in June 2010, the average monthly income in Shanghai was RMB5,350, while in Shenzhen it was RMB5,280 and in Guangzhou it was RMB4,750: In other words, many ordinary Chinese citizens will enjoy a tax cut as a result of the 2011 Income Tax Law and 2011 Implementing Regulations. High-income earners, on the other hand, will see a relatively modest increase in their income taxes.
Since the majority of foreigners working in China are high-income earners, they may be subject to greater individual income tax liabilities in China under the 2011 Income Tax Law. Given the Chinese government’s efforts to strengthen income tax administration on high-income earners, it is advisable for employers and individual taxpayers with high earnings to be watchful in their individual income tax compliance and seek professional advice if necessary.