27 December 2018
The MOF and SAT jointly issued this Notice on 27 December 2018 clarifying the transitional IIT preferential policy after the IIT law was revised in China. Between 1 January 2019 and 31 December 2021, foreign individuals meeting the conditions for resident individuals may choose to enjoy either additional special deductions for IIT or the preferential tax-exemption policies on allowances for housing subsidies, language training expenses and children's education expenses, etc. From 1 January 2022 onwards, foreign individuals will no longer enjoy the above preferential tax-exemption policies and shall enjoy additional special deductions as required.
In order to implement the revised IIT Law, the SAT released the above circular on 21 December 2018.
The circular states that following the amendment of the IIT Law, certain preferential measures will still be valid from 1 January 2019 to 31 December 2021 ("the transition period").
Annual Bonus
The annual bonus obtained by resident individuals in accordance with the SAT Circular [2005] No.9 before 31 December 2021 shall not be included in the consolidated income of the current year and shall be separately taxed on the basis of the amount by dividing the annual bonus by 12 months, subject to the applicable tax rate and the sum of quick calculation deduction determined according to the Consolidated Income Tax Rate Table (hereinafter referred to as the "Monthly Tax Rate Table") attached hereto after conversion by month.
During the transition period, residents can choose to have their annual bonus taxed separately from their comprehensive income.
As of 1 January 2022, the annual lump sum bonuses obtained by resident individuals shall be included in the consolidated income of the current year for the purpose of calculation and payment of IIT.
Employee equity incentive plan income from listed companies
The circular states that such equity incentives as stock options, stock appreciation rights, restricted stocks and equity rewards (hereinafter referred to as "equity incentives") obtained by resident individuals in accordance with the relevant conditions specified in the Circular [2005] No.35 shall not be included in the consolidated income of the current year during the transition period, and shall be separately taxed on the basis of the full amount separately subject to the Consolidated Income Tax Rate Table.
Policies on Allowances and Subsidies for Foreign Individuals Clearly Stated
The circular states that foreign resident individuals may choose to enjoy either additional special deductions for individual income tax or the preferential tax-exemption policies on allowances for housing subsidies, language training expenses and children's education expenses, etc. during the transition period.
Besides, the following points should be noted:
Consolidated Income Tax Rate Table after Conversion by Month
| Bracket | Taxable income per month | Tax rate（%） | Quick deduction |
|---|---|---|---|
| 1 | Not more than RMB 3,000 | 3 | 0 |
| 2 | Over RMB 3,000 but not more than RMB 12,000 | 10 | 210 |
| 3 | Over RMB 12,000 but not more than RMB 25,000 | 20 | 1,410 |
| 4 | Over RMB 25,000 but not more than RMB 35,000 | 25 | 2,660 |
| 5 | Over RMB 35,000 but not more than RMB 55,000 | 30 | 4,410 |
| 6 | Over RMB 55,000 but not more than RMB 80,000 | 35 | 7,160 |
| 7 | RMB 80,000 or above | 45 | 15,160 |