Wise Hit: Episode 4 'THE BULL'
On June 30, China’s top legislature adopted an amendment to the country’s Individual Income Tax (IIT) Law which will take effect from September 1, 2011. The amendment raises the monthly tax exemption threshold and revises the tax breaks, thereby reducing the tax burden for low and middle salary employees. The amount of deductible income for Chinese nationals will be raised from the current RMB2,000 per month to RMB3,500 per month, while the original progressive tax rates will also be reduced for low and middle level incomes.
China's IIT on income from salaries is subject to progressive tax rates that so far include nine different tax breaks, ranging from 5 percent to 45 percent. The number of tax breaks will now be reduced to seven, revealing a reduction in the tax burden for employees with monthly gross wages below about RMB38,600. By contrast, employees with salaries higher than RMB38,600 will see their net income decrease substantially from September onward.
The revised tax rates can be seen in the table below:
Below is a comparison of the IIT levels for Chinese nationals under both the old IIT Law and the new IIT Law for various income levels. As the table shows, Chinese nationals whose gross monthly income is below RMB38,600 will see their tax burden shrink, while individuals with gross monthly incomes above RMB38,600 will have to pay more. Under the new IIT Law, individuals whose gross monthly income falls between RMB8,000 and RMB12,000 will receive the highest tax cut of RMB480, a net increase between 6 and 4 percent respectively, while individuals whose gross monthly income is above RMB110,000 will see the largest increase in taxes (RMB1,195)
While the new deduction is not applicable to foreigners who already enjoy a monthly RMB4,800 tax deduction, the new tax rates will likely apply to them as well.
Rosario Di Maggio is Manager at Dezan Shira & Associates, China's largest independent business consulting practice. With ten offices across the country, Dezan Shira assists foreign companies in establishing representative offices, wholly owned foreign enterprises and joint ventures, and advices with M&A activities, employment contracts and Human Resource, legal and financial due diligences, profit repatriation, payroll, tax and accounting services, management and compliance audits. For more information, visit www.dezshira.com or contact Rosario Di Maggio at rosario.dimaggio@dezshira.com.
Q&A
QUESTION:
Dear Sir,
Our company has been buying semi finished goods from China for several years. So far, our activities in China have been pretty limited (quality control, suppliers’ research, etc). Now, some of our clients have been starting production in China and they ask us to sell our products to their subsidiaries. How can we do that without risking that our suppliers find out who are our clients?
ANSWER:
Nowadays foreign investors can establish limited liability companies in China able to buy and sell within the country. These entities have become very popular among small and medium size investors in the last several years, due also to the fact that the timeframe for registration and the capital requirements have been reducing gradually.
// Answers provided by Dezan Shira & Associates. Do you have any other inquiries related to corporate, legal and tax matter in China? Email us at info@dezshira.com
