Legal Updates from some of our members

31 Dec 2021

China Extends IIT Preferential Treatment

China authority decided on December 29, 2021 to extend the current IIT preferential treatment provided in Circular 164. Specifically, (1) the preferential income tax treatment for the annual one-time bonus, which expires by the end of 2021 according to Circular 164, will extend to the end of 2023, and (2) the preferential income tax treatment for the equity-based incentives, which expires by the end of 2021 according to Circular 164, will extend to the end of 2022. We expect the China tax authority will issue a formal circular in the next few days.

Under Circular 164,

  • IIT on annual one-time bonus may be calculated without aggregating it with one’s comprehensive income, and based on the marginal tax rate applicable to 1/12 of the annual one-time bonus amount (the marginal tax rate varies depending on the quantum of income, so this calculation approach lowers the marginal rate applicable);
  • IIT related to equity-based incentives is calculated separately from the taxpayer’s other comprehensive income and is subject to tax at the applicable (annual) marginal tax rate, provided however that the equity-based incentives are recognized by the tax authority and for such purpose filings/registrations under Circular 35 are required.
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