We highlight below a few proposed amendments that may be relevant to you or your clients.

1. CFC Rules

A new Article 8 is proposed to be introduced into the IIT Law. The proposed Article 8(2) states that if enterprises established in low-tax jurisdictions without reasonable business purposes controlled by PRC tax residents do not distribute or reduce distribution of dividends to PRC tax residents, the tax authority may adjust the tax payable by such PRC tax residents to take into account such retained amount. With respect to the interpretation of “low-tax jurisdiction”, “reasonable business purposes” and, most importantly, “control”, it is likely that similar rules on controlled foreign companies (“CFC”) in the enterprise income tax laws will apply. The commonly used offshore personal investment company structure is likely to fall within this rule. It will not be difficult for the tax authorities to tax the dividends with the information exchanged under the Common Reporting Standard (CRS).

2. Other Government Authorities to Assist Tax Authorities with Confirming Taxpayers’ Information .

A new Article 14 is proposed to be introduced into the IIT Law. It states that the Public Security, People’s Bank of China and financial supervisory and administrative authorities and other relevant authorities should assist the tax authorities to confirm taxpayers’ identity information and bank account information. The scope and procedure of information supply is unclear at this stage

3. 183 Day Test for Tax Residency

Proposed amendment to Article 1 of the IIT Law states that individuals having foreign citizenship or residence status with no domicile in the PRC but ordinarily residing in the PRC for 183 days or more is PRC tax resident and shall pay PRC tax on worldwide income. Under the current IIT Law, individuals having foreign citizenship or residence status with no domicile in the PRC but ordinarily residing in the PRC for a full year is considered a tax resident, while a person who is temporarily absent from the PRC for more than 30 days at one time or for more than 90 days in total in multiple trips within a year will not be considered ordinarily residing in the PRC for that year. Essentially the proposed amendment has shortened the period of stay in the test. Furthermore, under the current IIT Law and the Implementation Rules, the non-PRC-domiciled individuals who are considered PRC tax residents under the period of stay test but have not consecutively resided in the PRC for more than five years are only taxed on their PRC sourced income as well as their foreign sourced income paid by PRC enterprises, organizations, or individuals. It is uncertain whether such “five-year rule” will remain in the amended Implementation Rules.

4. Tax Filing Requirement before Immigration to a Foreign Country

Proposed amendments also include that a taxpayer who is immigrating to a foreign country needs to obtain tax clearance before de-registering its household registration. We note that it is not a new “exit tax”, but a clearance of existing taxes.