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New preferential Individual Income Tax policy in Greater Bay Area of China

The Chinese Ministry of Finance and State Administration of Taxation recently issued a circular regarding the Individual Income Tax (“IIT”) preferential policy for the Guangdong-Hong Kong-Macau Greater Bay Area. Since the tax difference between Mainland China and Hong Kong is quite significant, the implementation of the IIT preferential policy will make the Greater Bay Area more attractive to talents and will boost the construction and development of the area.

The salient features of the IIT preferential policy are as follows:

Eligible individuals

Foreign high-end talents and talents in shortage including Hong Kong, Macau and Taiwanese citizens that work in the Greater Bay Area

Eligible area

9 cities in the area – Guangzhou, Shenzhen, Zhuhai, Zhongshan, Dongguan, Huizhou, Foshan, Jiangmen and Zhaoqing

Preferential policy

Subsidies of tax difference between Mainland China and Hong Kong will be provided and such subsidies will be exempt from China IIT

Eligible period

1 January 2019 to 31 December 2023

Subject to further official guidance on tax calculation method to be released and as a simplified illustrative example, if a qualified talent earning a monthly salary of HKD100,000 works in Shenzhen, his estimated annual China IIT liability would be RMB250,080 (assume HKD1 = RMB0.85) and his estimated Hong Kong salaries tax liability on the same salary for the year would be HKD163,560 (say RMB139,026). According to the IIT preferential policy available in the Greater Bay Area (covering Shenzhen in this case), a subsidy of the tax difference between China and Hong Kong (i.e. RMB250,080 – 139,026 = RMB111,054) will be provided to this talent and such subsidy is exempt from China IIT.

The Guangdong and Shenzhen governments will further stipulate the criteria of qualified talents and the details of the subsidy. In this regard, detailed implementation rules will be issued by the governments to define the criteria of talents, procedures, qualified income category, IIT difference calculation method, etc.

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