Final Implementation Law for Individual Income Tax

On 22 December 2018, China’s State Council released the final implementation regulations for the amended Individual Income Tax (IIT) law (Decree of the State Council No. 707). Draft implementation regulations were released for consultation by the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) on 20 October 2018. We have summarized several changes made to the draft regulations regarding to resident and non-resident tax payers as follows:

Non-resident taxpayers

“Five-year rule” to “Six-year rule” 

  • The five-year rule has been adjusted to six-year rule and 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. Foreign employees cannot enjoy double benefits from expenses incurred of the same nature under both the non- taxable benefits rules and the specific additional deductions rules.

Resident taxpayers

Itemized deductions

  • The new IIT law allows resident individuals to claim six types of additional itemized deductions against their comprehensive income to compute IIT. The final implementation regulations confirm that the additional itemized deductions may be taken when computing IIT on business income to the extent the individual does not have any comprehensive income.
  • 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.

Please see the special deductions breakdown as follows:


Key qualifying conditions

Amount for deduction (RMB)

Who can claim?

Supporting Documents

Children’s education


3 years onwards


100% for either parent or 50%/50% by both parents

Only for children receiving education overseas: admission notice, student visa etc.


No requirement for children accepting education in China.

Compulsory education

Primary & middle school

Intermediate education

High school, Vocational school

Higher education

Degree, Masters, Doctorate

Further education

Formal education in China

As per above levels of education

400/month (max. 48 months for one formal education)

Individual taxpayers Exception for individual that has work but accepts education lower than bachelor degree: by parent or the individual

No requirement for formal education.



For professional education: professional certificate.

Professional education

Recognized qualification or certificate in China

One-off 3,600 in the year obtaining qualification /certificate

Serious illness medical fees

Medical expenses incurred for individual taxpayer, spouse or minor children after the reimbursement by statutory medical insurances in aggregate more than RMB 15,000

Actual expenses in part of exceeding 15,000 but less than 80,000 (deduction shall be claimed at the annual IIT reconciliation of the following year)

Medical fees for taxpayer or spouse: either by taxpayer or spouse

Medical fees for minor children: either party of the parent

Original or photo copy of receipts for medical service charges, vouchers for statutory medical insurance reimbursement, list of annual medical expenses issued by medical insurance institute etc.

Housing loan interest

Bank loan or housing fund for buying real property in China

Limited to first property only

1000/month (max. 240 months)

If jointly owned, either husband or wife to claim

Loan agreement and vouchers for re-payment of loan etc.

Housing rent

Not owning property in place of work


No claim of housing loan interest deduction by the taxpayer or spouse

Specified big cities[1]


If husband and wife work in the same city, only one side that sign the agreement can claim

If husband and wife work in different cities and not own property in either city, both and claim deduction of own

Rental agreement

Cities with population in urban districts > 1m


Cities with population in urban districts < 1m


Supporting elderly

60 years or older parents as well as grandparents aged 60 and above whose child(ren) has/have passed away

Taxpayer is the only one child


For taxpayer with siblings: split between siblings: maximum claim is 1,000 per month for each

Agreement for the allocation among siblings

[1] Specified big cities include Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, Xiamen, Ningbo, Qingdao, Dalian and the capital cities of all provinces.