Annual bonus

At the weekly State Council executive meeting held on December 29, 2021, Premier Li Keqiang announced that China will continue to implement several preferential individual income tax (IIT) policies. Among others, China will extend the preferential tax treatment for the annual one-time bonus until the end of 2023.

Under this scheme, individual income tax (IIT) on annual one-time bonus is calculated separately, rather than being combined and taxed together with the comprehensive income.

During the period till December 31, 2023, resident taxpayers in China will be allowed to choose between the following two methods to compute their IIT on the annual one-time bonus:

Method 1: Annual one-time bonus being taxed separately.

Method 2: Annual one-time bonus being taxed as part of the annual comprehensive income.

(Method 1, which was due to expire at the end of 2021, has now been extended to the end of 2023, while Method 2 will continue to be in effect.)

Value added Tax

After January 1, 2022, the VAT reduction policy for small-scale taxpayers will continue to be implemented temporarily. For small-scale VAT taxpayers using a 3% rate of taxable sales income, a temporary reduction of 1% will be levied on value-added tax; a 3% pre-collection rate for prepaid VAT items will be temporarily reduced at a 1% pre-collection rate to pay value-added tax. When issuing invoices, please select the related VAT rate, base on above policies.

Wish everyone safe, healthy and Happy New Year!