20220111-KPMG_Global-People_s_Republic_of_China_–_Recent_Developments_on_IIT_Policies_4页_370kb

Summary of Recent IIT Policy Developments in China

China's Ministry of Finance and State Taxation Administration issued three circulars in late 2021 extending favorable individual income tax (IIT) treatments for annual bonuses, equity-based incentives, and expatriate fringe benefits. These policies aim to provide certainty and encourage entrepreneurship by clarifying IIT assessment rules for income from sole proprietorships and partnerships.

Key changes:

• The extension of preferential tax treatment for annual bonuses by listed companies ends on December 31, 2022.
• Equity-based incentives, including stock options and restricted stocks, remain extended until December 31, 2023.
• Tax exemptions for benefits provided to foreign nationals working in China are extended until December 31, 2023.

The updates also require sole proprietorships and partnerships holding equity investments to report and be audited for IIT purposes starting January 1, 2022, including timely registration of investments with tax authorities. Existing policies like those in the Greater Bay Area are set to expire at the end of 2023.

These measures reduce tax burdens for salary earners, strengthen compliance, and promote a supportive environment for high-income individuals and businesses. Stakeholders should monitor policy developments, ensure compliance with reporting requirements, and plan for potential future changes and labor retention programs.