Public Notice Issued by the Ministry of Finance and the State Administration of Taxation Regarding the IIT Policies for Non-residents and Residents without Domicile (MOF & SAT Public Notice [2019] No. 35)

14 March 2019

The Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) issued the above public notice (“the Public Notice”) on 14 March 2019, effective from 1 January 2019. The Public Notice clarifies the Individual Income Tax (“IIT”) policies for non-residents and residents without domicile (hereinafter as the individuals without domicile) as follows:

• The regulations on the sources of several types of income include: wages and salaries, bonus and equity incentives, remuneration for directors, supervisors and senior executives, as well as manuscripts income;
• The regulations on calculating the income of wages and salaries of the individuals without domicile, including non-residents, residents and senior executives;
• The regulations on calculating the IIT payable amount of individuals without domicile, including non-residents and residents;
• The application of tax treaty to individuals without domicile, including the treatments of employment income, dependent personal service income or business profit, directors' fees, royalties and technical service fees; and
• The regulations on the IIT collection and administration on individuals without domicile.

Abstract

The Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) issued the above public notice (“the Public Notice”) on 14 March 2019, effective from 1 January 2019. The main contents include the following:

Determining Mainland-sourced income and Mainland IIT calculation methods for non-domiciled individuals

The Public Notice clarified that the Mainland-sourced employment income derived by non-domiciled individuals shall be determined based on the individual's Mainland workdays. Workdays in the Mainland are calendar days which are spent in the Mainland for business purposes. A stay in the Mainland for less than 24 hours on a calendar day is counted as a half workday.

Workdays in the Mainland include calendar days physically spent in the Mainland for business purposes, and, public holidays, personal leave and days spent in training which accrue to one's Mainland employment period, regardless of whether they are conducted inside or outside the Mainland.

Determining Mainland-sourced income and Mainland IIT calculation method for bonus (multiple-month performance period) and equity income

Concerning the equity incentives obtained by a non-resident individual in one month, the IIT taxable income in the current month shall be calculated separately, shall not be consolidated with other wages and salaries in the month, and shall be amortized in six months for tax calculation (the incomes from equity incentives in one calendar year shall be consolidated), without deductions.

Resident/Non-resident status pre-determination

The Public Notice allows pre-determination and assessment of residents/non-residents with no place of domicile regarding withholding IIT and calculation of IIT payables at the beginning of the tax year. A resident/non-resident who has changed his resident status during the year is required to submit annual IIT filings. The Public Notice also specifies that no late payment surcharges will be levied if the relevant IIT are paid before the tax authority prescribed payment deadline.