Review of the Latest Preferential Tax Policies for Individuals in China

Summary

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• A set of joint circulars extend a number of key preferential tax policies on individual income tax until the end of 2027
• The policies affected relate to favorable tax treatment for income additional to salary, such as bonuses and equity incentives
• Venture capital partners and foreign skilled workers in the Greater Bay Area will also benefit from the tax policy extensions

A series of preferential tax policies on individual income tax ("IIT") were due to expire by the end of 2023. However, China's Ministry of Finance ("MOF") and State Taxation Administration ("STA") have jointly released circulars which extend those policies for another four years. The State Council has also released a notice to raise the standards of special additional deductions for IIT calculation. The key preferential IIT policies that are extended or updated include:

• IIT exemption of subsidies and allowances for expatriate individuals (《关于延续实施外籍个人有关津补贴个人所得税政策的公告》(财政部税务总局公告2023年第29号));
• IIT calculation on a separate basis for an annual one-off bonus (《关于延续实施全年一次性奖金个人所得税政策的公告》(财政部 税务总局公告2023年第30号));
• IIT calculation on a separate basis for income from equity incentives of listed companies (《关于延续实施上市公司股权激励有关个人所得税政策的公告》(财政部税务总局公告2023年第25号));
• preferential IIT treatment for individuals' income from venture capital (《关于延续实施创业投资企业个人合伙人所得税政策的公告》(财政部税务总局国家发展改革委中国证监会公告2023年第24号));
• 15% effective IIT rate for foreign talents working in the Guangdong-Hong Kong-Macau Greater Bay Area ("Greater Bay Area") (《关于延续实施粤港澳大湾区个人所得税优惠政策的通知》(财税〔2023〕34号)); and
• raised standards for special additional deductions in calculating IIT payable (《国务院关于提高个人所得税有关专项附加扣除标准的通知》(国发〔2023〕13号)).

 1.   IIT exemption of subsidies and allowances for expatriate individuals

China has been granting an IIT exemption for expatriate individuals' subsidies and allowances in kind, such as housing subsidies, food allowances, relocation fees, laundry fees, travel subsidies, family visit fees, language training fees, children's education fees, etc.

In general, the tax exemption incentive would be more favorable to foreign individuals than the standardized special additional deductions, as there is no standard amount of subsidies and allowances in kind enjoyed by expats