Home Knowledge China China Taxes Individual Income Tax Comparison of IIT between Hong Kong, China and Taiwan for 2020 (1)
Chapter I Introduction |
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1. |
HK Residents |
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Hong Kong ’s taxation system is territoriality base. Any income under employment earned in or derived from Hong Kong or pension, regardless of whether it has been paid in other tax jurisdictions, is subject to salaries tax. |
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(1) |
Scope of Taxation Salaries tax in Hong Kong is similar to the salaries and wages item of individual income tax in Mainland China, or the salary and wages tax items of personal income tax in Taiwan. Its scope of taxation includes: (a) Salaries, Wages and Director’s Fees (b) Commissions, Bonuses, Leave Pay, End of Contract Gratuities and Payments In Lieu of Notice accrued on or after 1 April 2012 (c) Allowances, Perquisites and Fringe Benefits (d) Tips from Any Person (e) Salaries Tax Paid by Employers on Behalf of Employees (f) Value of a Place of Residence (g) Stock Awards and Share Options (h) Back Pay, Gratuities, Deferred Pay and Pay in Arrears (i) Termination Payments and Retirement Benefits (j) Pensions |
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(2) |
Tax Year The tax year of Hong Kong salaries tax is from April 1 of the current year to March 31 of the following year. Individuals should declare all their assessable income to the Inland Revenue Department (IRD) during this period. |
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(3) |
Declaration Period and Declaration Method Different from previous practices, the Hong Kong IRD issued the Property Tax Return and Employer Tax Return for the year of assessment 2019/20 on April 1, 2020. The Profit Tax Return and Personal Assessment will be issued on May 4, 2020 and June 1, 2020 respectively. In accordance with the regulations, after receiving the tax return, the individuals should complete and submit it to IRD within one month or at any other time specified in the tax return. Otherwise, they may be fined for late submission. The tax payable can generally be paid in two instalments, in January and April of the following year. The first instalment is 75% of the tax payable and the second instalment is the remaining 25%. Tax payment methods include postal payment, payment in person, payment by mobile phone, Internet or Automatic Teller Machine. |
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(4) |
Tax Computation Individuals can choose the following two methods to calculate the assessable income:
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(5) |
Tax Rate Individuals are taxed on their net chargeable income and applied the standard tax rate 15% or the five-level progress tax rate from 2%to 17%. Net chargeable income = Income - Total Deductions - Total Allowances The tax payable is calculated at the progressive tax rate for the chargeable income; or at the standard tax rate of 15% of the net income (without deducting the tax allowance), whichever is lower. Individuals can use the progressive tax rate to calculate salaries tax, but the salaries tax payable which is calculated at the progressive tax rate must not exceed the tax payable calculated by using the total income before the deductions multiply by the standard tax rate. If the tax payable amount calculated at the five-level progressive tax rate not exceeds 15% of the taxable income, the tax is calculated by using progressive tax rate; if the calculated tax payable exceeds 15% of the taxable income, the tax is calculated by 15% of the income. However, individual whose annual income is close to the level specified by the IRD must pay tax at the standard rate. The specific income standard can refer to the Income Level of Hong Kong that is Subject to Tax at Standard Tax Rates. Table 1-1:HK Five-level Progressive Tax Rates (applicable for 2018/2019)
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(6) |
Allowances The Hong Kong Tax Law does not stipulate the threshold for salaries tax but sets the tax allowance conditions and amount. Every individual who has paid salaries tax or has applied for personal assessment is entitled to a basic tax allowance. At the same time, other tax allowances can also be claimed in accordance with the tax law to reduce the total assessable income. Table 1-2:Allowances (applicable from the year of assessment 2018/2019)
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(7) |
Deductions In calculating salaries tax or personal assessment, in addition to various types of tax allowances, individuals can also claim other tax deductions. According to the relevant laws after the amendment, from the tax year beginning on April 1, 2019 (the tax year of 2019/20 and thereafter), the individuals purchase approved products under the eligible voluntary medical insurance plan for themselves or for the specified relatives, paying the eligible annuity premiums and making the MPF voluntary contributions can receive tax deductions under salaries tax and personal assessment. The maximum limits of the two tax deductions are HK $ 8,000 and 60,000 respectively. Table 1-3:Deductions for calculating salaries tax and personal assessment (applicable from the year of assessment 2019/2020)
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(8) |
Tax Reduction Policies Normally, the Hong Kong government will introduce tax reduction measures at the beginning of each budget year, including tax relief policies for income tax, salaries tax and personal assessment. According to the 2020/21 Budget released, a 100% tax relief will be implemented for salaries tax, income tax and personal assessment for the year of assessment 2019/20, but each case the tax relief will not exceed HK $ 20,000 |
2. | Taiwan Residents | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Taiwan ’s individual income tax adopts the territoriality principle, and only levy tax for the income from Taiwan. For any individuals having income from Taiwan, the individual income tax is levied for the income from sources in Taiwan. Residents in Taiwan should declare the income, claim exemptions and deductions of his/her spouse and dependents in the Individual Income Tax Return. Individuals who are not reside in Taiwan but have income from sources in Taiwan, unless otherwise specified, individual income tax is computed on gross income and taxes are collected through tax withheld at source. Taiwan's individual income tax is based on households and adopts an individual income tax return system. In the case that the individual taxpayer, his/her spouse, and/or dependents, who shall file a joint consolidated income tax return, have the gross consolidated income amount which includes all kinds of incomes. The gross consolidated income includes: (a) Income from Profit-seeking (b) Income from Professional Practice (c) Employment Income (d) Interest Income (e) Income from Lease and Royalties (f ) Income from Self-undertaking in Farming, Fishing, Animal Husbandry, Forestry and Mining. (g) Income from Property Transactions (h) Income from Contests and Games and from Prizes and Awards Won by Chance. (i ) Other income. |
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(1) |
Tax Year The tax year for Taiwan ’s individual income tax is from January 1 to December 31 of each year. Taxpayers (individuals) should report all taxable income during this period National Taxation Bureau. |
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(2) |
Declaration Period The declaration period of annual individual income tax is between May 1 to May 31of the following year (due to the new coronavirus epidemic, the 2019 individual income tax declaration period is particularly extended to June 30, 2020). During this period, the taxpayers (individuals) filing the Individual Income Tax Return provided by the National Taxation Bureau manually or filing the Individual Income Tax Return via Internet (Internet Declaration). Taxpayers (individuals) who apply the service of the pre-calculation of individual income tax returns can also use the pre-calculation notice and other relevant form for tax payment or reply confirmation. |
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(3) |
Declaration Method There are three methods of individual income tax declaration: filing via internet, filing via barcodes, and filing manually . In order to simplify the individual income tax declaration process, the National Taxation Bureaus and the Ministry of Finance of each regions provide the service of the pre-calculation of individual income tax returns for simplified cases. After the taxpayers (individuals) confirm the pre-calculation notice and other relevant forms they received, they should complete the payment of tax (tax payment case) or reply confirmation (tax refund case sand non-refundable cases) within the prescribed period, then the individual income tax declaration is completed. |
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(4) |
Tax Computation Net Consolidated Income Tax (Net Taxable Income) = Gross Consolidated Income - Exemptions - Standard / Itemized Deductions - Special Deductions - Basic Living Expenses Tax Payable =Net Consolidated Income * Tax Rate% - Progressive Difference Tax Refundable or Tax Self-payable = Tax payable - Total Prepaid Tax and Tax Credit |
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(5) |
Individual Income Tax Rate Table 2-1 Taiwan Progressive Tax Rates (applicable for 2019)
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(6) |
Exemptions Personal exemptions increase by 50% if the taxpayer, his/her spouse and the dependent of immediate families are or over 70 years of age. For the 2019 individual income tax return, the personal exemption is NT$88,000 for each person, including taxpayer, his/her spouse and immediate families, or NT$132,000 for those who are or over 70 years of age. |
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(7) |
Standard Deductions and Itemized Deductions Deductions include general deduction and special deductions. The general deductions are divided into standard deductions and itemized deductions. A taxpayer may select either the standard deduction or itemized deductions which is more beneficial to them. The standard deduction for 2019 is NT $ 120,000 for single person and NT $ 240,000 for married persons filing jointly. 12 Allowable itemized deductions, including contributions and donations, insurance premiums, medical and childbirth expenses, losses from disaster, interest paid on loans for the purchase of an owner-occupied house, rent for housing, donations to political parties under the political contribution law, donations to political organizations under the political contribution law, donations for candidates to be elected and election expenses for candidates according to the Public Officers Election Removal Law, which can be deducted in accordance with the provisions of the Income Tax Law. |
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(8) |
Special Deductions Previously, the special deductions, including the special deduction for employment income, loss from property transactions, savings and investments, physically or mentally challenged, educational tuition, and pre-school children. In order to cooperate with the government's promotion of the long-term elderly care policy, the 2020 tax return also included the long-term elderly deduction, which is deducted by a fixed amount of NT $ 120,000 per person. However, the special deduction for long-term elderly care are not applicable to taxpayers whose applicable tax rate is greater or equal to 20% for the consolidated individual income after the amount of the long-term care deduction, or to those who opt for the single tax rate of 28% on dividend income computed separately. In addition, the income tax policy in 2020 has been adjusted. Since the tax year of 2019, a dual-track salary deduction system will be implemented. The employment deduction may be elected to use either fixed salary deduction limited to NT$200,000 for each person or special deductions for necessary salary expenses from employment income to calculate taxable salary income. Necessary salary expenses including vocational clothing expenses, upgrading training expense, and vocational tool expenses which are directly related to services rendered. As the upper limit of each necessary salary expense is 3% of the annual salary income, and the upper limit of the special deduction for salary income is NT $ 200,000, it is beneficial for taxpayer to choose the necessary salary expense deduction while the taxpayer ’s annual income exceeds NT $ 2.2223 million. |
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(9) |
Basic Living Expenses For tax year 2019, the basic living expense has increased from NT$171,000 to NT$175,000 per person and the calculation method for comparation of basic living expenses has also been changed. If the amount of basic living expense is higher than the sum of personal exemption, general deduction, special deduction, the difference can be used as an additional deduction from the gross consolidated income. The Basic Living Expense Difference calculation formula is: Total Basic Living Expenses - (Personal Exemptions + Standard / Itemized Deductions + Pre-school Deduction + Disability Deduction + Deduction for Savings and Investment + Deduction for Education and Tuition) |
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(10) |
Summary of Exemptions and Deductions According to the current standard of tax exemptions and deductions, for the 2019 consolidated income tax return, taxpayers are exempt from individual income tax when they are singles with annual income of less than NT $ 408,000, or childless couples with annual income of less than NT $ 816,000, or couples have two children under the age of five and have income less than NT $ 123.2, or couples have two children under the university and have annual income of NT $ 1.1 million. Please refer to the list of Taiwan individual income tax exemptions and deductions. Table 2-2: Taiwan Summary of Exemptions and Deductions (applicable from 2019)
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3. |
China Mainland Residents | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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According to the Tax Law of Mainland China (hereinafter referred to as China), the employment income earned by individuals in China called salaries and wages income, including salaries and wages, bonuses, year-end salary increases, labour dividends, equity incentives, allowances, subsidies and other income related to employment are one part of the comprehensive income. Regardless of whether the payment is made in China or not, it is the income derived from China, and individual income tax should be declared and paid according to the law. According to the regulations, when taxpayers obtain salaries and wages income, they shall apply the seven-level of progressive tax rates to calculate individual income tax on an annual basis and the withhold and prepay on a monthly basis. Then complete the individual income tax annual declaration from March 1 to June 30 of following year according to the actual income obtained. |
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(1) |
Tax Year Starting from January 1, 2019, China ’s individual income tax has been calculated on an annual basis, like Hong Kong and Taiwan. The tax year is from January to December 31 of each year, the taxpayers need to declare their all incomes of this period to tax bureau. |
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(2) |
Declaration Method and Declaration Period However, the difference with Hong Kong and Taiwan is that the individual income tax on salaries and wages income in China is subject to monthly withholding and prepayment and annual declaration. The withholding agent is the employer who pre-calculates and withholds the individual income tax payable when pays the monthly salary to employees, then the withholding agents pays the individual income tax to the tax bureau within the specified reporting period of the following month. The period for monthly withholding and declaration is from the 1st to the 15th of each month (in case of regular holidays, it will be postponed). During this period, the withholding agent shall complete individual income tax declaration and payment on the salaries and wages obtained by employees in the last month. Taxpayers without withholding agents can go to the tax bureau in person to file their own declarations. According to the regulations of the IIT Law, resident individuals need to calculate the tax amount of comprehensive income including salaries and wages, labour remuneration, author’s remuneration, and royalties obtained from January 1 to December 31 of the previous year after the end of the year, minus the amount of tax paid in advance for the current year. Then calculate the amount of tax refundable or additional payable for the current year on annual declaration to tax bureau. The annual declaration period of individual income tax is from March 1 to June 30 of the following year when the income is obtained. Eligible taxpayers can handle the annual declaration by themselves, or they can entrust withholding agents or other units and individuals to handle for them. |
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(3) |
Cumulative withholding method When the withholding agent pays comprehensive income such as salaries and wages to the resident individual, the withholding tax is calculated according to the cumulative withholding method, and individual income tax is withheld on a monthly basis. When the taxable income is still negative after the end of the tax year, the taxpayer shall apply the tax refund by annual declaration. Calculated as follows: Withholding Tax in Current Period = (Cumulative Withholding Taxable Income * Withholding Tax Rate - Quick Deduction)-Cumulative Tax Exemptions and Deductions - Cumulative Tax Withheld Cumulative Taxable Income for Withholding and Prepayment = Cumulative Income - Cumulative Tax Exempted Income - Cumulative Deductions - Cumulative Special Deductions - Cumulated Special Additional Deductions – Other Cumulated deductions Stipulated by Law |
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(4) |
Annual One-off Bonus Resident individuals who receive an annual one-off bonus can choose the following two methods to calculate the tax payable amount before December 31, 2021.
Starting from January 1, 2022, individual residents who receive an annual one-off bonus for the whole year must be integrated into the comprehensive income of the year to calculate and pay individual income tax. |
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(5) |
Share Option Incentive Resident individuals who obtain share option incentives such as stock options, stock appreciation rights, restricted stocks, and equity awards are not included in the comprehensive income of the year before December 31, 2021 to calculate the tax according to comprehensive income tax rate. If a resident individual obtains two or more equity incentives within a tax year, they shall be integrated for calculation. The calculation formula is Tax Payable = Share Option Incentive income * Applicable Tax Rate - Quick Deduction |
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(6) |
Exemptions and Deductions For China individual residents, when calculating individual income tax on salaries and wages, RMB 60,000 special deductions, special additional deductions and other deductions determined according to law can be deducted for each year. During the period from January 1, 2019 to December 31, 2021, foreign individuals who meet the conditions of the resident can choose to enjoy the deduction according to the above standards, or enjoy allowances such as housing subsidies, language training fees, child education fees, etc. These two preferential policies cannot be enjoyed at the same time. From January 1, 2022, foreign individuals will only be able to apply the same deduction criteria as Chinese individual residents. Table 3-1 IIT Exemptions and Deduction Amount (applicable from the year 2019)
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(7) |
Tax Rate According to the regulations, the taxpayer's income from salaries and wages is subject to a seven-level of progressive tax rates in the range of 3% to 45%, and the individual income tax is calculated on an annual basis, and a monthly withholding and prepayment method is implemented Table 3-2: Salaries and Wages IIT Rate (applicable from the year 2019)
Table 3-3: Monthly Comprehensive IIT Rate (applicable from the year 2019)
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