Postings | China Accounting Blog | Paul Gillis


New tax law to drive out expats

bChina reformed its individual income tax system last year, and changes that will take effect in 2021 are likely to drive many expatriates out of China.

China started an individual income tax shortly after opening up began. Initially, only foreigners paid the tax largely because most local nationals did not earn enough to pass the thresholds. Income has risen spectacularly in recent decades, yet finance officials believe that only 2% of the population actually pays income taxes (in 2015 28 million people paid while it is thought 187 million should be paying). I expect to see much stricter enforcement in coming years.

Those who pay tend to be employees whose employers withhold the tax. That means the tax burden tends to fall on urban professionals. Rich people and those operating in the shadow economy find it easy to evade taxes.

Tax reform will lower the tax burden on lower- and middle-income people, while leaving the top rates intact. China has a progressive tax system with rates topping out at 45% on income over 960,000 RMB (US$143,000).

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