On 19 July, the State Council announced the Amendment of the PRC Individual Income Tax Law Implementing Regulations Decision. The decision revises the standards for deductible expenses applicable to the payment of personal income taxes by some taxpayers.
Contracting and leasing business
According to the PRC Individual Income Tax Law, for income of an individual derived from contracting or leasing business carried out on behalf of an enterprise or an institution, after necessary expenses are deducted from the total income for each tax year, the balance will be the taxable income amount. Prior to the implementation of the decision, when calculating the taxable amount of income from contracting or leasing business, the deductible necessary expenses were RMB2,000 (US$310) per month. After implementation of the decision, the monthly deductible expenses will be revised to RMB3,500.
Wage and salary income
According to the Individual Income Tax Law, the taxable income of taxpayers who have no residence in China but derive wage or salary income in China, as well as of taxpayers who reside in China and derive wage or salary income from outside China, will be their monthly wage or salary income minus deductible expenses.
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According to their average income levels and taking into account changes in exchange rates, such taxpayers will be entitled to additional deductible expenses, details of which will be set by the State Council. Before the decision, the monthly deductible expenses for such taxpayers were RMB2,000, and for those entitled to additional deductible expenses, a further deductible expense of RMB2,800 was allowed, bringing the total monthly deductible expenses to RMB4,800.
After the implementation of the decision, the monthly deductible expenses will be increased to RMB3,500. Those taxpayers entitled to additional deductible expenses can only receive a monthly deduction of RMB1,300. The total monthly deductible expenses will remain at RMB4,800. The change in the calculation method will not have much impact on the tax burden of taxpayers who are entitled to additional deductible expenses mainly because the change is made to align with the standards for deductible wage and salary expenses under general conditions after revision of Individual Income Tax Law.
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Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at baochen@haiwen-law.com. Readers should not act on this information without seeking professional legal advice.
