Implementation Rules for Individual Income Tax

In our previous newsletter, we had already reported on the changes due to the “Amendment on Individual Income Tax Law”:

On 20 October 2018, the Ministry of Finance and the State Administration of Taxation released the Draft “PRC Individual Income Tax Implementation Rules and Draft Measures on Itemized Deductions”, seeking consultation from the public. The consultation program closes on 4 November 2018.

We have summarized several key points regarding to resident and non-resident tax payers as follows:

Foreign individuals

Five-year rule will be retained

  • The five-year rule will be remained so that foreign employees can avoid paying taxes on worldwide income as a Chinese resident. Although residence will be triggered based on 183 days, a single break in excess of 30 days will continue to create a “tax break” for these purposes.
  • The eligibility for the exemption on foreign sourced income may need to be validated through a “put-on-record” filing.

Tax-exempt benefits will be retained

  • Foreign employees can elect to retain the tax-exempt benefits privilege they currently enjoy.
  • If the foreign employees elect to claim itemized deductions under the new system when they meet the necessary conditions, they cannot enjoy tax exemption on fringe benefits, such as children’s tuition, and housing rental, and simultaneously claim deduction for such expenses under the itemized deduction system.

PRC domicile individuals

Documentation requirements on itemized deductions

  • Individuals will be required to submit the information relating to itemized deduction claims for first time declaration to their tax withholding agent or tax bureau, and any subsequent changes should also be notified to the employer.
  • Unclaimed tax deductible expenses incurred in current year cannot be carried over to the following year.

By issuing the public consulting notice regarding to the specific additional deductions on individual income, we can see China is establishing the framework of a comprehensive deduction system and paves the way for further deepened IIT reformation in the future, and will substantially reduce the tax burdens for both foreign employees and Chinese resident employees.

Please see the special deductions breakdown as follows:


Key qualifying conditions

Annual standard fixed amount for deduction (RMB)

Who can claim?

Children’s education


3 years onwards

12,000 50% for each parent / 100% for either parent

Compulsory education

Primary & middle school

Intermediate education

High school, Vocational school

Higher education

Degree, Masters, Doctorate

Further education

Formal education

As per above levels of education


Individual taxpayers

Professional education

Technical / professional certificates


Serious illness medical fees Medical expenses > RMB 15,000 Actual expense not exceeding 60,000 Individual taxpayers
Mortgage interest Limited to first property only 12,000 If jointly owned, either husband or wife to claim
Housing rental Not owning property in place of work

Big cities


If joint rental, either husband or wife to claim

Mid-size (population) > 1m


Smaller (population) < 1m


Supporting elderly 60 years or older parents or other obligations by law

Single child


Split between siblings: maximum claim is 1,000 per month for any person

Not Single Child