IIT Incentives for Overseas Talents

Eligible overseas talents working in nine cities in the greater bay area can enjoy a preferential tax rate of 15 percent, in line with the Hongkong rate. Could this rate apply to you?

Greater Bay Area (GBA) officially announced detailed rules for the implementation of preferential individual income tax (IIT) policy for overseas talents.

Eligible overseas talents working in nine cities in the region can enjoy a preferential tax rate of 15 percent – in line with the Hong Kong IIT rate.

To support the smooth implementation of the Guangdong-Hong Kong-Macau GBA plan and attract overseas talents to work in this region, China has rolled out measures to grant subsidies to overseas high-end and critically-lacking talents.

On March 14, China’s Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly released Cai Shui [2019] No.31 (Circular 31). The circular allows eligible overseas talents to receive government subsidies to offset differences in the individual income tax (IIT) burden between mainland China and other regions. The plan will last for five years and end on December 31, 2023.

The Chinese government will use the standard tax rate of 15 percent.

On June 22, Guangdong province released Yue Cai Sui [2019] No.2 (GD Notice 2), which sets out the main criteria and principles for implementing the preferential IIT policy, including the requirements of applicants and the standard and scope of differential subsidies.

Although the notice itself was announced in June, the subsidy will be calculated based on the taxable income for one year, from January 1 to December 31, 2019.

What’s the subsidy and how to calculate it?
The subsidy will apply to nine cities across the Pearl River Delta region: Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing.The local governments of these nine cities will provide the subsidies for eligible talents working in the respective city; the subsidies will absorb the IIT difference between the mainland and Hong Kong.

The IIT system of Hong Kong currently adopts a five-level progressive rate (2, 6, 10, 14, or 17 percent) or a standard rate (15 percent). For the convenience of practical operation, the Chinese government will use the standard tax rate of 15 percent. Thus, the actual amount of IIT that the eligible person needs to pay will be 15 percent of their taxable income.
Therefore, to calculate the IIT difference or the amount of subsidy, the formula is:

The subsidy amount = the amount of IIT paid in those nine cities – taxable income × 15 percent.

What is considered taxable income under the IIT policy?
Pursuant to the GD Notice 2, the IIT paid in the nine cities cover: salaries and wages, income from provision of independent person services, income from author’s remuneration, income from royalties, income from operations and subsidized income from selected talent projects or talent programs.

Who is eligible?
Overseas talents working in the above-mentioned nine cities and paying taxes as required by law in the local city are eligible for the subsidy. They may be permanent residents of Hong Kong or Macau, Hong Kong residents who came to Hong Kong through the Hong Kong entry scheme for talents, professionals and entrepreneurs, residents of Taiwan, foreign nationalities or overseas students and overseas Chinese who have obtained the right of long-term residence abroad.

Moreover, applicants need to fit the basic definition of “high-end” and “critically-lacking” talents according to the GD Notice 2. More specific identification standards and operative measures are left to the nine municipal governments to formulate, according to their respective local conditions.

The applicant or employer can submit the application to the local financial department once the application procedures are announced. If approved, the subsidy will be consolidated and granted to the talent once a year. If a talent obtains the subsidies from two or more places, such subsidies shall be reasonably shared by the relevant local governments.

The eligible talents and their employers are advised to monitor the follow-up local notices and apply for the subsidies in time after the practical measures are introduced.

This article was first published on China Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India, and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at china@dezshira.com. Further information about our firm can be found at: www.dezshira.com.