China: Big Present by end of 2021! – Extension of Preferential IIT Policy on Annual Bonus

published on 30 December 2021 | reading time approx. 1 minute

Yesterday Chinese government announced that the preferential IIT treatment on one-time annual performance-related bonus will be extended for another two years, till the end of 2023.

According to the prevailing IIT regulation, one-time annual performance-related bonus received by a resident taxpayer of China (both Chinese and foreign resident) can be taxed for IIT separately from the other regular monthly salaries and be subject to a lower tax rate, which is determined by 1/12 of the bonus amount. Such treatment can be used only once per calendar year.

It was announced in 2018 that the above tax preferential treatment on annual bonus would be abolished by 31 December 2021, which has been a big concern of many taxpayers due to the increase of their IIT burdens.

For many it is a big present that the extension of the IIT treatment on bonus policy still came out, right before the end of 2021. Taxpayers and employers are recommended to review the annual packages and incentive bonus schemes in order to benefit from the extension of policy in a compliant way.