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China's New IIT Law


China revised Individual Income Tax ("IIT") becomes effective on 1 January 2019.

What are the key impacts for foreign individuals working in China? 

  1. New Definition of tax residency rule

In determining the tax residency status of individuals without domicile in China, the physical presence threshold is tightened from “one-full year” to “183 days”.

  1. Six-year rule for foreign taxpayers

If any foreign individual stays in China more than 183 days in a calendar year, they will become the tax-resident but doesn’t mean their global income will be exposed.

How to break the six-year rule: Staying in China for no more than six years or leave China for at least 31 consecutive days before the six-year term comes.

  1. Transitional policy on tax-exempt benefits for foreign individuals

Foreign employees who are China tax residents may elect to either (from 2019 to 2021):

  • Continue to claim the current tax exemption on certain fringe benefits; or
  • Claim itemized deductions under the new IIT regime.

Please note that after 3-year transition period, the housing allowance, Children’s education and Language training will be eliminated and replaced by the additional itemized deductions; While, the rest non-taxable benefits items will still be kept.

Do the current tax exemption benefits for foreigners still exist under China’s new IIT Law?


We believe that the current non-tax fringe benefits for expatriates will be partly kept. The draft Measures on Additional Itemized Deductions of Individual Income Tax stated that foreign individuals can choose to adopt the special additional deduction policy or continue to enjoy the current tax incentives on children's education fees, language training fees, and housing subsidies. Some other subsidies, such as: meal allowance, home trips fees, laundry fees, etc. that are not mentioned in the Draft probably will be abolished.

Simply put, expatriates will retain some of the tax-exempt benefits they currently partly enjoy; however, they will not be able to claim exemptions for items such as housing rent, children’s education, or language training while also claiming a deduction for the same item. The details will have to be further confirmed with local tax authorities later on.

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