The Individual Income Tax (“IIT”) Law of the People’s Republic of China (“China” or “PRC”, excluding Hong Kong, Macau and Taiwan) was first introduced in 1980.
The prevailing IIT Law of PRC was revised in 2011 (“IIT Law 2011”). The recent revision made to the IIT Law 2011 was approved by the Standing Committee of the National People’s Congress on August 31, 2018 (“IIT Law 2018”), which is the 7th revision on IIT law in China and will be effective from January 1, 2019 (except for the changes in progressive IIT rates for salary income to be implemented on October 1, 2018).
The IIT Law 2018 is a revolutionary step towards the harmonization of international taxation and an adaption in response to the increasing labor costs over the past decade in China. It also intends to minimize the wealth gap and enhances the information sharing between various government authorities. This article provides an overview of the changes in IIT Law 2018 and highlights the potential consequences on employees (including both Chinese and foreign employees) working in China and their Chinese employers.