China's National People's Congress issued the new Individual Income Tax Law (the "IITL") on June 30, 2011, which will enter into force on September 1, 2011.

The new IITL was modified based on the current IITL (issued on December 29, 2007) and the major changes were made as follows:

1. Taxable Threshold

The minimum amount of the taxable threshold for individual income tax payments by Chinese employees has been increased from RMB 2,000 to RMB 3,500, which means that Chinese employees who earn less than RMB 3,500 per month will not pay individual income tax.

However, the minimum amount of the taxable threshold for individual income tax payments by foreign employees has not been changed. It still remains RMB 4,800.

2. Bracket System of Tax Rates

The corresponding part of the salary amount will be taxed according to the new tax rates stipulated in the new IITL.

Please refer to the form below to compare the tax rates before and after September 1, 2011:

New Bracket System (Monthly taxable income after deduction of RMB 3,500)	New Tax Rates (%) after September 1, 2011	Old Bracket System (Monthly taxable income after deduction of RMB 2,000)	Old Tax Rates (%) before September 1, 2011
Not more than RMB 1,500	3	Not more than RMB 500	5
More than RMB 1,500 but not more than RMB 4,500	10	More than RMB 500 but not more than RMB 2,000	10
/	/	More than RMB 2,000 but not more than RMB 5,000	15
More than RMB 4,500 but not more than RMB 9,000	20	More than RMB 5,000 but not more than RMB 20,000	20
More than RMB 9,000 but not more than RMB 35,000	25	More than RMB 20,000 but not more than RMB 40,000	25
More than RMB 35,000 but not more than RMB 55,000	30	More than RMB 40,000 but not more than RMB 60,000	30
More than RMB 55,000 but not more than RMB 80,000	35	More than RMB 60,000 but not more than RMB 80,000	35
/	/	More than RMB 80,000 but not more than RMB 100,000	40
More than RMB 80,000	45	More than RMB 100,000	45

Comments

According to the new IICL, the taxable threshold will be raised to RMB 3,500 and the tax rates will also be changed, which will lead to the following results:

a. The low-income employees (whose monthly salary is below RMB 3,500 per month) will benefit from this new taxable threshold and they will not bear the tax burden.
b. The tax burden on the salary of the employees (whose monthly salary is more than RMB 3,500) will be decreased according to the new taxable threshold and tax rates.
c. Employers (companies) will indirectly benefit from the new IICL and reduce the employment cost.
d. Although the new taxable threshold will not apply to the foreign employees (it will remain RMB 4,800), the new tax rates in new IICL will be applied to the foreign employees, which means that the tax burden on the salary of the foreign employees will also be decreased.