Analyze On the Personal Income Tax Exemption Policy

道可特法视界第1206篇原创文章

Abstract: 

At the end of last year, China revised the "Personal Income Tax Law of the People's Republic of China" and the "Implementation Regulations", which have been officially implemented since January 1 this year. The new tax regulations refer to international practice and determine whether the individual is a “resident individual” in the sense of tax law by whether the individual has a domicile in China, the length of stay in China, and the frequency of departure and the length of departure. At the same time, the new tax law stipulates the tax liability and obligation exemption for “resident individual” and “non-resident individual” respectively. However, due to the lack of clarity in the provisions of the new law and regulations, many confusions have arisen in the actual application process. Therefore, the Ministry of Finance and the State Administration of Taxation jointly issued the "Announcement on the Judgment Standards for Individuals' Living Time without Residency in China" on March 14 to eliminate relevant practical obstacles.

The tax regulations clearly define “resident individual” as an individual who has a domicile in China or who has lived in China for a total of 183 days in a tax year (from January 1 to December 31 of the Gregorian calendar) without a domicile. “Non-resident individual” refers to an individual who has no residence in China and does not live, or who has no residence and who has lived in China for less than 183 days in a tax year. Under the individual tax regulations, “resident individuals” are required to pay personal income tax on their income from within China and abroad, and “non-resident individuals” are only required to pay personal income tax on their income from China.

The statutory provisions clearly stipulate that “no residence” does not necessarily exempt individuals from paying their personal income tax on their income from outside China.

Article 4 of the newly revised Implementation Regulations states that, “after filing with the competent tax authority, individuals who do not have a domicile in China who have lived in China for a total of 183 days in a row for less than six years are exempt from paying personal income tax on income derived from outside China and paid by overseas units or individuals; individuals who have lived in China for a total of 183 days will be re-started if they have left the country for more than 30 days in any one year.” The provisions of this article are regarded as favorable provisions for foreign, Hong Kong, Macao and Taiwan residents, which have no residence in China but are “resident individuals” in the sense of tax law.

However, in practice, because the provisions of this article on the calculation of the number of days of residence in China and the starting point of the "six consecutive years" period are unclear, there are many problems in practical application. Therefore, the Ministry of Finance and the State Administration of Taxation jointly issued the "Announcement on the Judgment Standards for Individuals' Living Time without Residency in China". It stipulates that if an individual stays in China for 24 hours, it will be counted in the number of days in China. If the stay in China is less than 24 hours, it will not be counted in the number of days in China. At the same time, it clearly stipulates that the income of individuals who do not have a residence have accumulated 183 days of residence in China within a tax year, have accumulated less than 183 days of residence in China or a single departure for more than 30 days in any of the previous six years, from the country outside of China and paid by overseas units or individuals shall be exempt from personal income tax. It is particularly noted that “in previous six years” refers to six consecutive years from the previous year to the first six years of the tax year, and the starting year of the previous six years begins from the year after 2019 (inclusive). This means that foreign, Hong Kong, Macau and Taiwan talents can enjoy a tax preferential policy on their overseas income paid in foreign countries before 2024 (inclusive). At the same time, as long as the individual who do not have a residence in China has left the country for more than 30 days in a row for six consecutive years from 2019, the calculation can be interrupted and the continuous life of 183 days in China will be recalculated, the individuals can continue to enjoy a tax incentive and delay the obligation to pay a tax on global income.

The new tax regulations and policies have further relaxed the exemption conditions for personal income tax payment obligations for foreign, Hong Kong, Macau and Taiwan individuals who do not have a residence in China. It will certainly attract foreign investors and foreign talents to China, and further promote foreign exchanges.

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