On July 28th, 2020, the State Taxation Administration (STA) issued the “Announcement on Improving and Adjusting the Method for the Withholding and Prepayment of Individual Income Tax (IIT) of Certain Taxpayers”, which came into force on July 1st, 2020.
The new policy is intended to support graduates and students pursuing internships in China entering the job market as new employees by decreasing the withholding IIT imposed on their income.
The new policy is addressed to individuals who just got hired for the first time in this fiscal year and aims to provide workers with more disposable income without reducing their year-end tax bills, even though the positive impact is just on the first calendar year of employment.
The relief is given to ‘resident individuals’, defined as those who have a domicile in China, or individuals who do not have a domicile in China but reside in China for 183 days or more during a calendar year.
New employees will benefit from the increase of the personal deduction used when calculating the withholding IIT each month.
According to the Individual Income Tax Law of the People's Republic of China, all employees can benefit from a standard personal deduction of 5,000RMB per month for the calculation of their personal withhold IIT. From July the 1st, 2020, for eligible new employees, the formula is adjusted as if employment took place at the beginning of the calendar year, instead of the actual date when the employee was hired.
(According to Individual Income Tax Law of the People's Republic of China, Article 6 Computation of taxable income amount, (1) the taxable amount of personal comprehensive income shall be the balance after deduction of RMB 60,000 from the income amount of each tax year.)
Withholding agents need to revise the payroll processes in accordance with this Announcement and make adjustments to the withholding record-keeping meanwhile new employees has to provide relevant supporting materials (proofs include graduation card, student ID card...).
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