29 Mar 2019 China legal update: Relaxed Individual Income Tax Exemption Conditions for Foreign Individuals
I. Legal News
Relaxed Individual Income Tax Exemption Conditions for Foreign Individuals
Recently, the Ministry of Finance (« MOF ») and the State Administration of Taxation (« SAT ») have issued the Announcement on the Criteria for the Determining the Residence Time of Foreign Individuals without Residence in China and the other announcement to further clarify the Individual Income Tax Policies for Non-resident Individuals and Resident Individuals without Residence in China (the « Announcements »), both of them are retrospectively effective from January 1, 2019.
As stated in our previous Legal Update, the Individual Income Tax Law (“IIT Law”) and its implementation regulation were revised in 2018, and the criterion for individuals to be determined as tax residents has been changed from one year to 183 days, which means that individuals who have been in China for 183 days or longer within a year shall be considered as tax residents whose comprehensive incomes will be subject to 7 levels of progressive tax rates.
In order to attract foreign investment and to encourage foreigners to work in China, the Announcements grants more generous tax exemptions for foreign individuals as follows:
First, previously, incomes of foreign individuals earned overseas will be tax exempt if he/she has lived in China for less than five years. The Announcements extends this period from five years to six years.
Secondly, the clock for the aforesaid six years will be reset if the foreign individual leaves China for more than 30 days in a year.
To summarize, a foreign individual’s oversea-sourced income will only be taxed if he/she has lived in China for six consecutive year, and each year, he/she has stayed in China for more than 183 days, as well as he/she never left China for more than 30 consecutive days in any year.
Third, the Announcement also makes it clear that a stay in China for less than 24 hours will not be calculated into a residence day.
Value-added Tax Reform Deepened by a Series of Supporting Measures
The State Administration of Taxation (“SAT”) has recently issued the Announcement on Matters Concerning the Deepening of the Value-added Tax Reform (“the Announcement”) followed by a work plan and a series of policy documents which will be effective as of April 1, 2019.
Value-added tax (VAT) has become the most important tax in China, accounting for more than 60 percent of the revenue and is collected by the SAT. The highlights in the 2019 VAT reform include the 1 to 3 percent tax reduction and deduction along with the tax rebate system.
In respect of tax reduction, the Announcement clarifies as follows:
– the 16% VAT rate that applies to sales of goods or importation of goods will be lowered to 13%. (for example, manufacturing sectors)
– the 10% VAT rate that applies to sales of goods or importation of goods will be lowered to 9%. (for example, construction and transport sectors)
Besides, the SAT have released three other documents to clarify the specific implementation scope and the management regulations to deepen the VAT reform. The issuance of VAT invoices during the transition period, the one-time deduction of input VAT on real estate and the needed forms for VAT deduction are well explained therein. Specifically, the Announcement indicates that where a general VAT taxpayer needs to issue a red-letter invoice due to the sales discount, sales suspension, return of goods or other relevant reasons to invalidate an invoice issued before the reform, that red-letter invoice shall be issued at the previous VAT rate. In the case of a wrong VAT invoice needs to be replaced by a new one, a red-letter invoice shall be issued at the previous VAT rate before re-issuing a correct blue-letter with a new correct VAT rate.
Time for Foreign-invested Enterprises to Submit the 2019 Annual Joint Report of Investment and Operation Information
Recently, five PRC departments including PRC Ministry of Commerce have jointly distributed the Circular on the Annual Joint Report of Information and Operation Information of Foreign-Invested Enterprises in 2019 (the “Circular”).
The Annual Joint Report mechanism is a part of the government campaign to streamline administrative process and to enhance the information sharing between government departments to make it easier for enterprises to report. According to the Circular, a foreign-invested enterprise legally established and registered in China shall log into the national website (http://www.lhnb.gov.cn/) to submit its own investment and operation details for the previous year (2018), and the reporting period is between April 1, 2019 and June 30, 2019.
For foreign-invested enterprises established in 2019, the annual information should be reported from the next year (2020).
It is noted in the Circular that relevant data and information will be shared among authorities of commerce, finance, taxation, statistics, and foreign exchange. Also, basic information of foreign-invested enterprises submitted upon completion of Annual Joint Report will be published on the website of the Ministry of Commerce (http://lhnbgs.mofcom.gov.cn) pursuant to the Provisional Regulations on Enterprise Information Disclosure.
Xi and Macron Agreed in Paris to Boost a Vibrant China-France Partnership
On March 24, 2019, the three-nation Europe tour of the Chinese president Xi Jinping had come to the final stop, France. It is the second State visit by Xi to France in five years.
The meeting between Xi and his French counterpart Emmanuel Macron was held at the Elysee Palace in Paris, where they signed multi-billion-dollar deals and reached the consensus to push forward the close connection between the two countries to forge a more solid, stable and vibrant China-France comprehensive strategic partnership on a new starting point in history.
The relationship between China and France has a very solid basis that France was the first western power to establish formal diplomatic relations with China 55 years ago. According to Xi, the China-France relations have kept developing in a sound and stable way despite the great changes taking place in the world. Neither China’s emphasis on China-France relations nor common pursuit of peace, development, fair and justice has changed, and the mutually beneficial and win-win nature of China-France cooperation has always stayed the same.
Noting that China has just approved its new Foreign Investment Law in this month, Xi promised to keep relaxing market access, optimizing business environment, strengthening intellectual property rights protection, and expanding high-level opening-up. Xi welcomed more French businesses to invest and develop in China, and urged both sides to accelerate the negotiations on the China-EU investment treaty.
Macron also promised to boost cooperation with China in various fields, to push forward EU-China cooperation, and that his country remains committed to being China’s reliable strategic partner.