On August 25, 2023, the Ministry of Finance (MOF) issued the Circular on Continuing the Preferential Individual Income Tax Policies (IIT) in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), specifying that the relevant policies will remain in force until December 31, 2027.

Originally, the GBA IIT was first introduced by China’s MOF and State Tax Administration (STA) in 2019 in order to attract high-end or in-demand talent from overseas to the GBA and was set to expire by the end of 2023.

What is the GBA IIT subsidy?

Under the GBA IIT subsidy program, the portion of IIT that an eligible person has paid in one of the nine mainland cities of the Greater Bay Area—that is in excess of the first 15 percent of their taxable income—is subsidized by the respective municipal government. This subsidy is also exempt from further IIT. The GBA IIT subsidy applies to overseas high-end and in-demand talent working in the region.

The IIT subsidy is capped at RMB 5 million (approx. US$691,266) for each taxpayer in a given tax year (China’s tax year runs from January 1 to December 31).

The tax that is eligible for the subsidy is the tax that is paid on the following types of income:

• Income from wages and salaries;
• Income from remuneration for labor services;
• Income from author remuneration;
• Income from royalties;
• Business income; and
• Subsidized income obtained through talent projects.

The nine mainland cities are Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqing.

Each of the nine mainland cities in the GBA are tasked with compiling a local talent catalog, which identifies the eligible high-end and in-demand foreign talent according to each city’s requirements.

For example, according to Guangzhou’s measures for the GBA IIT subsidy application, both in-demand and high-end talent in Guangzhou must meet the following requirements:

• Work or be employed by an enterprise or other institution registered in Guangzhou during the tax year, provide independent personal labor services in Guangzhou, or engage in production and business activities in Guangzhou;
• Work in Guangzhou for more than 90 days in a given tax year;
• Pay IIT in Guangzhou;
• Not been included in the list of untrustworthy joint punishment targets in accordance with laws and regulations at the time of application; and
• Meet the standards set out in the respective in-demand and high-end talent catalogs (see below).

Moreover, the taxable income of overseas in-demand talent in Guangzhou must also exceed RMB 300,000 (approx. US$41,370) in a given tax year. Other details about Guangzhou’s catalogs of overseas in-demand and high-end talent can be found in our China Briefing article: Greater Bay Area Resumes Preferential IIT Subsidy for Foreign Talent in 2023

Why has the extension been announced?

The extension comes as the Chinese government is ramping up efforts to rebuild confidence and attract foreign investment.

The latest data from MOFCOM shows that foreign capital in China has declined considerably since the reopening after the pandemic. Between January and July 2023, actual use of foreign capital in China reached RMB 766.7 billion (US$111.8 billion), a decrease of 4 percent year-on-year. In dollar terms, this figure decreased by 9.8 percent year-on-year.

On August 13, 2023, China’s cabinet, the State Council, released the Opinions of the State Council on Further Optimizing the Foreign Investment Environment and Intensifying Efforts to Attract Foreign Investment (the “Opinions”), which contains 24 measures for attracting foreign investments. These range from improving intellectual property rights to facilitating cross-border data flows.

The Opinions also suggest a series of tax policies designed to attract and retain foreign investment, ranging from funding support and tax exemptions for reinvestment to preferential treatment for foreign individuals and incentives for investments in specific sectors.

Being one of China’s largest and wealthiest city clusters, the GBA has been a core driver of China’s explosive growth. Deeper integration of the area through government policy, improved transport infrastructure, and specialized capabilities and resources of the various areas, have made the GBA cities increasingly attractive to foreign businesses and their staff.

By extending the GBA IIT subsidy to the end of 2027, foreign businesses and talents in China will gain more certainty regarding their tax burden in China and will have a better idea of how foreign investment is being emphasized by the government.

Applying for the GBA IIT subsidy in 2023

In principle, the GBA IIT subsidies is supposed to be processed once a year during the implementation period, and applications for the subsidy for each tax year are accepted the following year. However, the municipal governments did not open applications for the subsidy in 2022 as they adopted tight fiscal policies and allocated huge portions of their budgets to COVID-19 prevention and control.

In June 2023, the Guangdong Provincial Department of Finance issued a notice to the municipal governments of the nine mainland GBA cities, officially kicking off the procedures for the GBA IIT subsidy once more. Retroactive applications for the 2020 tax year, as well as applications for tax years 2021 and 2022, will be processed together during the application window in 2023.

Meanwhile, a new guiding document governing the implementation of the GBA IIT subsidy (Yue Cai Shui [2023] No.21) has been released by Guangdong province, replacing the previous Yue Cai Shui [2020] No.29.

That said, however, at the time of writing this article, only Guangzhou and Foshan have released updated draft management measures for the application of the IIT policy in the city, and the respective local authorities have not yet announced when they will begin to accept applications again.

We will continue to monitor the release of further guidelines and application guidelines from Guangzhou and the other eight GBA cities.

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For the past few years, Dezan Shira & Associates China has been helping businesses and their foreign employees in the GBA take advantage of the IIT subsidy by helping to identify suitable candidates, assisting with application procedures, and maintaining communication with local officials and government departments. For more information on the 2023 IIT subsidy applications, please contact us at china@dezshira.com.

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