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1st September, 2018

The Draft Amendment to the Individual Income Tax Law and its effect on abroad residents employment


The standing committee of the National People’s Congress is reviewing the draft amendment to the individual income tax law. The Draft amendment introduces the concept of tax residents to replace the original “one year taxpayer” and amends article 1 that stipulates in a tax year, individual income tax shall be paid in 183 days based on income earned within and outside China after 183 days of residency in China, in other words, if the draft is approved, residents abroad, including Hong Kong nationals who have lived in mainland for half a year will need to declare their global income and pay individual income tax. Now, they have to live within China for five years before needing to declare.

Their latest implementation is called total income. That is, in addition to the salary, interest, selling of building and buying of stocks are accumulated together to calculate the tax rate.The highest tax rate in China is 45%,which is higher than the tax rate in Hong Kong.Generally,the highest tax rate in Hong Kong is 15%.If the highest rate is implemented, it will likely affect 30% of Hong Kong nationals.

Dickson Leung, who has been living in Beijing for 23 years, founded an accounting firm in Beijing in 2001.The company has branches in Beijing, Shanghai, Guangzhou, Shenzhen and other palces. There are more than 200 employees including people from Hong Kong. Recently, he has also noted that amendments to individual income tax may affect his desire to hire people from Hong Kong to work in mainland China.

If people from Hong Kong come to work in my company, there is no reason for then to earn less than in Hong Kong, there is no reason for them to bear 30%more tax. If they have to bear it, they would not come, if they do not bear it, the employer has to bare the tax. As an employer, if you have to bear 30%, the cost would be very high. It is likely that we would not hire Hong Kong people to live in mainland China.

Dickson is worried that once changed, the threshold that taxes overseas individuals on their global income for those who have lived in China for more than 5 years will be higher. It will crack down Hong Kong people’s desire to develop in greater bay area.

Mainland China tax scholars pointed out that central government and Hong Kong singed an agreement to avoid double taxation. The new amendments are handled in accordance with international conventions, It is also the authorities’ duty to safeguard states’ tax rights and interests and to cooperate with global campaign against tax evasion

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