CHINA | Individual Income Tax — Special Additional Deductions


The Standing Committee of the National People’s Congress revised the Individual Income Tax Law of the People’s Republic of China (IIT).

The revisions came partly into effect in October 2018 predominantly affecting tax rates and general standard deductions for general income (please see previous tax-related articles).

From 1 January 2019, the revised IIT law goes into full effect and the added special deductions for overall taxable income will play a significant role in IIT calculations.

Under the revised IIT law, special additional deductions refer to expenses which may be deducted from one’s general income in the following areas:

  • Children’s education
  • Continuing education
  • Medical expenses for serious diseases
  • Housing mortgage interest
  • House rent
  • Elderly care expenses

The Circular on Seeking Public Comments on Interim Measures for Additional Special Deductions for Individual Income (Draft for Comment) promulgated 20 October 2018 outlines the requirements and deductible amount of each additional special deductions item. The Interim Measures according to the Ministry of Finance and State Taxation Administration are established to effectively to reduce tax burdens and improve lives.

Table of Special Additional Deductions

Special additional deductions mainly apply to Chinese residents domiciled in China. Although, the Interim Measures stipulates foreign individuals to either claim additional special deductions, in accordance with the provisions or foreigners may continue to enjoy the existing tax exemptions.

In order to enjoy the additional special deductions, taxpayers are required to submit the relevant information the withholding agent (usually the employer) or relevant tax authority. Therefore, employers, as withholding agents, should be updated and implement the relevant procedures to additionally bring employees up to date, request such information, as well calculate the relevant special additional deductions and declare the withholding as according to the information provided by the employees.

Come 1 January 2019, HR departments should accommodate the updates according to law revisions outlined in this article.

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