For many Chinese immigrants who invest and buy homes in Australia, in addition to being concerned about Australia's local tax laws, Changes to China's tax laws, such as recent tax reform related to China's individual income tax, will also affect their status as tax residents and the final tax-burden costs of their earnings in China and Australia.
On 31 August 2018, the Fifth meeting of the standing Committee of the 13th National people's Congress voted and adopted the decision of the standing Committee of the National people's Congress on amending the personal income tax Law of the people's Republic of China. And will take effect from January 1, 2019and the latest starting point and tax rate from October 1, 2018. September 10, 2018. The Ministry of Finance and the General Administration of Taxation issued the Circular on the Application of individual income tax deductions and tax rates in the fourth quarter of 2018. On 20 October 2018, the Ministry of Finance, The State Administration of Taxation has promulgated the regulations on the implementation of the personal income tax Law of the people's Republic of China (revised draft for seeking comments) and the interim measures on Special additional deductions for individual income tax (draft for soliciting opinions) (hereinafter referred to as "hereinafter referred to as" (draft for comments "), And public consultation with the community.
The revision of the personal income tax law specifically modifies and perfects the scope and mode of collection, calculation and declaration, the scope of tax exemption and exemption, and the principle of anti-tax avoidance. The publication of the subsequent draft of the implementation regulations clarifies the implementation rules and specific management measures. We will share with you in this issue the final revision of the tax Code as well as our observations.
The main contents of this personal income tax revision include the following points:
- Revise the definition of individual resident and introduce the concept of "183 days" as the criterion for determining the personal / non-resident personal status of residents;
- Promoting comprehensive taxation of wages and salaries, remuneration for services, remuneration for contributions and royalties (that is, comprehensive income);
- By raising the standard of basic reduction of expenses, adjusting the tax rate range and optimizing the tax rate structure, adjusting the after-tax income of low-and middle-income labourers, reducing the tax burden;
- We will initially set up a comprehensive deduction mechanism for individual income tax, and increase special additional deductions for expenses related to children's education, continuing education, medical treatment for serious illness, housing and the maintenance of the elderly;
- The establishment of anti-tax avoidance rules, the first time independent trading principles, controlled (individual) foreign enterprises rules and general anti-tax avoidance provisions introduced into the individual income tax law;
- Reform the personal income tax collection and management system, such as the establishment of taxpayer identification number to implement the "one person one" and further clarify the responsibility of withholding agents.
How will the foreign assets of high net worth persons be affected?
It is worth noting that in the course of the personal income tax reform, high net worth persons have also been directly affected in terms of asset arrangements and tax compliance costs at home and abroad. We observe the following:.
One, are you a tax-paying individual in China?
The revised personal income tax law defines a resident as an individual who has a domicile in China or has no domicile and who has resided in China for a cumulative period of 183 days within a tax year.
Personal income tax shall be paid in accordance with the law for income earned by individual residents both within and outside China. Prior to the revision, the requirement for residence in China was "full one year" in the definition of individual resident, which undoubtedly increased the cost of tax compliance for taxpayers.
Second, do immigrants also have to pay taxes in China?
After the revision of personal income tax law, tax management has been strengthened for taxpayers who receive overseas income or emigrate abroad. Article 10 stipulates that a taxpayer who receives income from abroad or cancels Chinese household registration as a result of emigration shall, in accordance with law, file a tax declaration.
Article 13 A resident who receives income from outside China shall report and pay tax within the period from March 1 to June 30 of the following year. If a taxpayer cancels a Chinese household registration due to emigration, he or she shall settle the tax before cancelling the Chinese household registration.
Three, is it possible to avoid tax exemption?
If an individual income tax law is amended to establish anti-tax avoidance rules, Article 8 states that if a taxpayer has any of the following circumstances, the tax authority shall have the right to make tax adjustments in accordance with a reasonable method, and if it is necessary to pay additional taxes, it shall pay additional taxes and increase interest in accordance with the law:
1. The business transactions between individuals and their affiliated parties do not conform to the principle of independent transactions and reduce the amount of tax payable by themselves or their affiliated parties without justifiable reasons;
2. Enterprises set up under the control of residents or jointly controlled by residents and resident enterprises in countries (regions) where the actual tax burden is obviously low shall have no reasonable business needs, There shall be no distribution or reduction of profits which should belong to the individual residents;
3. Individuals obtain improper tax benefits by implementing other arrangements that do not have a reasonable commercial purpose.
epilogue
Since the reform of China's personal income tax may affect the tax treatment of income and other income from Chinese-backed taxpayers and enterprises in China, Australia and third countries, as well as the overall tax planning, We recommend that taxpayers and enterprises:
- In-depth understanding of the amendment
- According to the amendment, whether he is a tax resident of China or not
- If it is not clear whether the definitions of both Chinese and Australian tax residents are met at the same time, consider determining the final tax resident status in accordance with the bilateral tax agreement between China and Australia
- Further assess the potential impact according to our own situation, including the common reporting standard (CRS) financial account information exchange mechanism mentioned in our previous article (see Andersen official account "CRS Financial account Information swap launched this month").
Taxpayers and enterprises should reassess their taxes and make tax plans as soon as possible according to new tax requirements. If you encounter any questions in the above practice, please consult our China-Australia bilateral tax expert.
