In accordance with the Individual Income Tax (IIT) Law amended by China’s NPC in 2007, individual income tax is imposed on all individuals, including both PRC and foreign nationals residing in or deriving income from the PRC.PRC residents are generally subject to tax on their worldwide income. Non-residents are subject to tax on their PRC-source income only.

Newest Regulations of IIT Law
An individual is allowed a flat deduction of RMB 2000 each month to compute net taxable income. IIT law has been amended in 2011 to change this amount to RMB 3500, and is going to take effect from September 1st, 2011. Expatriate employees are entitled to an additional deduction of RMB 1,300 per month.

Non-residents
Individuals who do not maintain a permanent place of abode in the PRC and who work in the PRC fewer than 365 days in a calendar year are considered non-residents and are subject to individual income tax under different rules, as described below.
Resident for 90 Days or Less
Individuals who reside in the PRC continuously or intermittently for not more than 90 days during a calendar year are treated in the following manner:
·The expatriate is exempt from individual income tax if the salary is paid and borne by an overseas employer.
·Employment income paid or borne by the employer’s establishment in the PRC is subject to individual income tax to the extent that the income is attributable to services actually performed in the PRC. Normally, the tax liabilities are apportioned into PRC and non-PRC services in accordance with the actual number of days the expatriate resides in the PRC. An establishment for these purposes includes a representative office and the site of a contract project in the PRC.
·The residency threshold is increased from 90 days to 183 days if the expatriate is resident, during the relevant calendar year, in a country that has concluded a double tax treaty with the PRC (tax treaty expatriate).
Residents for 90 to 364 Days
Individuals who reside in the PRC for more than 90 days (183 days for tax treaty expatriates), but less than one year, are treated in the following manner:
The expatriate is subject to individual income tax on employment income derived from services actually performed in the PRC.
Assessable income includes all employment income, whether it is paid or borne by an employer inside or outside the PRC.
Employment income attributable to services performed outside the PRC is exempt from individual income tax.
Directors and Managers
If an expatriate is a director, general manager or deputy general manager of an enterprise registered in the PRC, all employment income paid or borne by the PRC enterprise is subject to individual income tax, whether the relevant services are performed inside of outside the PRC.

Income paid by an employer outside the PRC to these individuals is taxed in one of the following ways:
The income is exempt from individual income tax if the individual resides in the PRC for not more than 90 days (or 183 days for tax treaty expatriates) during a calendar year; or
The income is subject to individual income tax if the period of residency extends to more than 90 days( or 183 days for tax treaty expatriates) to the extent that the income is attributable to serivices in the PRC.

Individual Income Tax compliance check
Employees in China, particularly foreign employees, rely heavily on their employers in respect of compliance with individual income tax obligations. The consequences for non-compliance, for both employers and employees, are extremely serious. Hwuason’s lawyers are experienced at reviewing employers individual income tax procedures to ensure that relevant legal and tax obligations are being met.

• Areas that should be reviewed for compliance include:
• Housing benefits and reporting of other fringe benefits;
• Equity-based compensation
• Terms of employment agreements;
• Secondment and other dual contract/split pay arrangements;
• Employment terms for legal compliance;
• Employer reporting processes.