China has extended preferential tax treatment for the annual one-time bonus to the end of 2023.
On 29 December 2021, Premier Li Keqiang chaired the executive
meeting of the State Council, in which measures to continuously
reduce the burden of Individual Income Tax ("IIT")
taxpayers and relieve the pressure on middle and lower-income
groups were extended beyond their previous expiration
date.
The meeting, in fact, decided to continue the implementation of
some preferential policies for IIT:
1. Annual one-time bonuses can be considered aside the
salary income of the month in which they are paid and do not
influence the cumulative income of the recipients. The policy
offering the choice to separate the tax calculation according to
the monthly conversion tax rate for the bonus amount will be
extended until the end of 2023.
2. Those taxpayers whose annual income does not exceed RMB 120,000
or whose annual tax filing amount does not exceed RMB 400 will be
exempted from paying IIT. The policy will continue until the end of
2023.
3. The separate tax calculation of equity-based incentives of
listed companies will continue until the end of 2022.
The three policies outlined above are expected to reduce the total
tax burden on taxpayers by RMB 110 billion a year.
What is the annual one-time bonus?
According to the Notice of the State Administration of
Taxation on Adjusting the Method of Calculating and Levying
Individual Income Tax such as the Annual One-time Bonus Obtained by
Individuals (Guo Shui Fa [2005] No. 9), the year-end
bonus refers to the one-time bonus paid to employees by employers
according to the annual economic benefits and the comprehensive
assessment of employees' annual work performance. According to
the assessment, the one-time bonus includes the annual salary raise
paid by employers that implement the annual salary system and
performance salary method.
Please note that for employees who obtain various kinds of bonuses
other than the annual one-time bonus, such as semi-annual bonus,
quarterly bonus, overtime bonus, advanced bonus and attendance
bonus, these shall be combined with the salary income of the
current month and pay individual income tax in accordance with the
provisions of the tax law.
Tax calculation for the annual one-time bonus
Based on the amount obtained by dividing the annual one-time bonus income by 12 months, the applicable tax rate and quick deduction shall be determined according to the monthly converted comprehensive income tax rate table (as shown below). The tax shall be calculated separately.
Levels | Monthly Taxable Income | Tax Rate (%) | Quick Deduction |
1 | < 3,000 | 3 | 0 |
2 | > 3,000 to 12,000 | 10 | 210 |
3 | > 12,000 to 25,000 | 20 | 1,410 |
4 | > 25,000 to 35,000 | 25 | 2,660 |
5 | > 35,000 to 55,000 | 30 | 4,410 |
6 | > 55,000 to 80,000 | 35 | 7,160 |
7 | > 80,000 | 45 | 15,160 |
The calculation formula is:
Tax payable = Annual one-time bonus income × Applicable tax
rate - Quick deduction
It should be noted that in a tax year, the separate tax calculation method of year-end
bonuses can only be used once.
Extension of the current non-taxable allowances regime for foreign individuals to 31 December 2023
On 31 December 2021, with the aim of further reducing the burden
on taxpayers, the Ministry of Finance and the State Administration
of Taxation jointly released Announcement 43 on the continuation of
preferential policies on individual income tax for foreign
individuals. The Announcement reads as follows:
According to the Notice of the Ministry of Finance and the
State Administration of Taxation on the Connection of Preferential
Policies after the Amendment of the Individual Income Tax
Law (CaiShui [2018] No. 164), the implementation period
of the preferential policies on subsidies for foreign individuals
and the preferential policies on separate tax calculation for the
term of office incentive of the heads of state-owned enterprises
will be extended to December 31, 2023.
Non-mainland Chinese residents (including Hong Kong, Macao
and Taiwan) who can provide valid vouchers for housing rental, meal
& laundry, relocation, home trip transportation, language
training and children's education shall be exempted from
individual income tax within a reasonable range after examination
and confirmation by the in-charge tax authorities.
Category | Requirements |
Housing rental |
|
Meal and laundry |
|
Relocation |
|
Home trip transportation |
|
Language training |
|
Children's education |
|
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.