OUR INSIGHTS
• China reforms tax collection and management
TAX
• Amendments to individual income tax law
CORPORATE ADVISORY
• State Council abolishes 11 administrative approval items
HUMAN RESOURCES
• Mainland China residence permit for Hong Kong, Macao, Taiwan residents
Our Insights
China reforms tax collection and management
China announced a tax collection and management system reform plan (or “reform plan”) that centralises tax collection on the national and provincial levels. The reform plan also places the responsibility of calculating and collecting social insurance premiums solely on the State Administration of Taxation (SAT). These changes will take effect on 1 January 2019.
Reform
In 1999, China’s Interim Regulations on the Collection of Social Insurance Premiums stated that either local tax authorities or social insurance agencies established by the labour security administrative department in accordance with State Council regulations can collect social insurance premiums. This ambiguity has resulted in inconsistent procedures for collecting social insurance premiums in different parts of the country over the past two decades.
Currently, only Henan’s local tax authority and social security agencies in 13 provinces handle this collection process for all types of social insurance. In other parts of China, either local tax authorities or social security agencies manage this process depending on the insurance type, city or county. Such locations are expected to be most affected by the new reform plan.
The tightening of social insurance collection is likely the Chinese government’s response to the nation’s ageing population and rising pension deficit. As China’s population ages, the government will be under greater financial strain to provide services for the elderly.
With the SAT solely responsible for the calculation and collection of social insurance premiums, there will no longer be any ambiguity over which authority is ultimately responsible for these processes.
Enforcement
In principle, all companies should contribute the full social insurance amount due in a timely manner without the need to centralise collection under the SAT.
In some instances however, due to differences in social insurance premium collection methods, it has been difficult for the government to track the actual status of social insurance contributions. Companies might illegally pay less than the required social insurance premiums on behalf of their employees or even avoid them altogether.
Under the new reform plan, the SAT will be able to track such illegal practices more easily as it possesses more sophisticated calculation and collection capabilities than the Ministry of Human Resources and Social Security, which currently oversees social security contributions nationwide.
The stricter enforcement is expected to reduce non-compliance with social security regulations. Employers should take the opportunity to conduct a thorough HR compliance review and ensure that social insurance contributions are legally compliant before 1 January 2019.
Tax
Amendments to individual income tax law
China announced amendments to its individual income tax law that will take effect on 1 January 2019.
The following are key amendments:
Modified criterion to determine tax residency status
An individual will be considered a tax resident if he or she has stayed in China for 183 days (instead of one year previously) in a tax year. The tax year begins on January 1 and ends on December 31.
Progressive tax rate for various incomes
Labour remuneration, author remuneration, royalties and wages and salaries will be collectively referred to as “Comprehensive Income” and subject to a progressive tax rate ranging from 3% to 45%.
Modified calculation of taxable income
Increased standard deduction amount
The standard deduction amount will be raised from RMB3,500 to RMB5,000 per month.
Additional deductions
Additional deductions include items such as children’s education fees, continuing education fees, medical expenses for serious diseases, mortgage interest payments, housing rents, and expenses for supporting the elderly. Of these, deductions for children’s education fees, continuing education fees and housing rents already exist, but only for calculating expatriates’ tax liabilities where applicable.
Changes to deduction policy for taxable income
For labour remuneration and royalties, the taxable income will be the balance after deducting 20% from the actual income. The taxable income for author remuneration will be 56% of the actual income.
From 1 October 2018 to 31 December 2018, the taxable wage or salary each month is the balance after the standard deduction of RMB5,000 and other lawful deductions.
State Council abolishes 11 administrative approval items
China’s State Council announced the abolishment of 11 administrative approval items with effect from 28 July 2018.
These include the following:
- Registration of approved conglomerates
- Chinese mainland employment permits for residents from Taiwan, Hong Kong and Macao
- Business permits for repairs of motor vehicles
- Approval for foreign projects in the transport sector
- Preliminary approvals for domestic businesses to establish enterprises (excluding financial enterprises) abroad
- Record filing for establishment of company branches
- Record filing for branches established, changed and deregistered by foreign-invested partnerships
- Withdrawal of business licences
- Issuance of certificate for maintenance of agricultural machinery
- Visas for vessels entering and leaving fishing ports
- Preliminary examination of key state-protected aquatic wild animals and their products for import and export
With the abolishment of these items, regulatory measures for strengthening in-process and ex-post supervision now apply instead.
Mainland China residence permit for Hong Kong, Macao, Taiwan residents
Residents of Hong Kong, Macao and Taiwan can now use their business licence, labour contract, wage payment documents, or social security payment records as evidence of employment in mainland China. They are also eligible to register for unemployment benefits.
This follows the State Council’s announcement on 3 August 2018 that these residents no longer need work permits to work on the Chinese mainland. For employment purposes, they are now treated the same as local mainland Chinese residents.
Since 1 September 2018, such residents who obtain a Chinese mainland residence permit have also been allowed to enjoy more residence permit privileges. Residents from Hong Kong, Macao and Taiwan who have been legally working, living, or studying in mainland China for at least half a year may apply for the residence permit. The guardians of those under the age of 16 can apply on their behalf.
Mainland residence permit holders can legally work and make social insurance and housing fund contributions anywhere on the Chinese mainland without having to acquire a work permit. But they may only enjoy the benefits associated with the mainland residence permit in the city where the residence permit is registered.
Details of benefits enjoyed by mainland residence permit holders are shown in the table below.
| Benefits |
Details |
| Public services |
- Compulsory education
- Basic public employment services
- Basic public health services
- Public sports services
- Legal aid and other legal services
- Other basic public services
|
| Other benefits |
- Transportation by domestic flights, trains, etc.
- Hotel lodging
- Banking, insurance, securities and futures, and other financial services
- Shopping, buying tickets for parks and various sports venues, cultural entertainment, business travel and other activities
- Registering motor vehicle in resident city
- Applying for motor vehicle driving licence in resident city
- Participating in vocational qualification examinations and applications for professional qualifications
- Registering for family planning services in resident city
- Some other public amenities
|
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