On 31 August 2018, the Standing Committee of the National People's Congress (SCNPC) passed and issued a final bill to amend the Individual Income Tax (IIT) Law. Although the consultation draft released on 19 June 2018 contained a suggested effective date of 1 January 2019, it is still surprising to see the final bill so quickly considering that: (i) the bill introduces substantial changes to the IIT Law; (ii) the bill received numerous public comments during the consultation period; and (iii) the SCNPC just completed the second reading of the bill on 27 August 2018.
The amendment bill will take effect from 1 January 2019, but adjustments to tax brackets and deduction items will also apply to salaries and wages, as well as operating income derived starting from 1 October 2018. Once the bill takes effect it will have far-reaching impact on the tax liabilities of both Chinese and foreign individuals in China. Given the substantial changes introduced under the bill, other IIT rules will need to be revised in order to implement the new IIT Law.The rules that will undergo revision include the IIT Law Implementing Regulations, and certain rules issued by the Ministry of Finance (MOF) and State Administration of Taxation (SAT).
In this article, we will first discuss the bill's major changes to the existing IIT regime, the implications of those changes, and the uncertainties created by those changes that need further clarification. Next, we will discuss how individual taxpayers should respond to the new IIT regime.