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China China Taxes Individual Income Tax Comparison of IIT between Hong Kong, China and Taiwan for 2020 (2)
KNOWLEDGE|
Section II Case Analysis |
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Based on the aforementioned exchange rate between HKD, RMB and NTD, after converting the employment income /salaries income and tax payable denominated in RMB and NTD into HKD, the tax payable of Mainland China, Hong Kong and Taiwan are as follows. (Maximum tax payable and tax bearing rate is marked with red):
From the results of above calculation, it can be seen that according to Hong Kong's tax relief measures, when the tax payable is less than HK $ 20,000, Hong Kong residents do not need to pay taxes. Hong Kong residents have the lowest income tax for the same amount of employment income than the residents in Mainland China and Taiwan. The main reason is that Hong Kong ’s personal income tax (individual income tax) can obtain higher tax allowances and more tax exemptions and deductions. In addition, the Hong Kong Inland Revenue Department has not set excessively high and complicated tax exemption conditions, so that Hong Kong residents are more likely to meet the requirements of tax exemption or deduction, so they can enjoy various tax preferential policies more generally and easily. Compared with Taiwan and Shanghai, the tax burden of Shanghai residents is higher because although the taxpayers in mainland China have already calculated the annual comprehensive tax and enjoyed a special additional deduction, but in fact they cannot declare the family as the unit, and there are many restrictions on tax exemptions and deductions. For example, husband and wife cannot file a joint declaration, and when the husband or wife has no income, the taxpayer cannot obtain any allowance. For any supporting parents, the number of supporting parents are not taken into account for the special supplementary deduction regardless of how many dependants the taxpayers should support, the total deduction shall not exceed RMB 24,000 for all taxpayers who are the single child, the maximum per person shall not exceed RMB 12,000 for taxpayers who are non-single child. The Taiwan tax law allows taxpayers to declare and pay individual income tax on a family basis. This method has obvious advantages when the family income is low, the parents and several children need to be supported. However, compared with Hong Kong, Taiwan ’s income tax law also has more restrictions on tax exemptions and deductions and more complex requirements, such as wealth restrictions clauses. In addition, according to the calculation results of Examples 6 and 7, in the case where the family income is high and the husband and wife have salary income, the amount of tax levied on the salary income of a taxpayer or his/her spouse computed separately and then declared and paid on a consolidated basis by the taxpayers is lower than the consolidated declaration, the tax method of computed separately is more advantageous. This is because the higher the net comprehensive income obtained during the consolidated calculation, the higher the corresponding progressive tax rate and the higher the tax payable. |
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Case One: Single Employees |
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1. |
No Dependent Relatives | ||||||||||||||||||||||||||||||||||||||||||||||||||
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[Example 1] The taxpayer is a single without siblings, his father is 54 years old and his mother is 53 years old. |
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(1) |
Hong Kong Residents
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(2) |
Taiwan Residents
Note: While the Taiwan resident taxpayers’ parents are under the age of 60, they cannot declare as dependent parents and need to declare the individual income tax separately. List the deductions of labour insurance premiums and health insurance premiums that are lower than the standard deductions, so choose the standard deductions that are beneficial to taxpayers. |
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(3) |
Shanghai Residents The taxpayer is the single child and the parents are not aged over 60, so they cannot apply for a special additional deduction for the elderly care. (a) Individual Income Tax for Salaries and Wages
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| 2. | Have Dependent Relatives | ||||||||||||||||||||||||||||||||||||||||||||||||||
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[Example 2] The taxpayer is single without siblings and lives with parents. His father is 60 years old and his mother is 58 years old. |
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(1) |
Hong Kong Residents The taxpayer's parents have all met the age standard of the tax allowance and live together with the taxpayer. In addition to the tax allowance of dependent parents, an additional tax allowance can also be applied. The total amount of tax exemptions and deductions exceeds the annual income, and taxpayers are not required to pay taxes.
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(2) |
Taiwan Residents A taxpayer ’s father is over 60 years old and his mother is under 60 years old who has no ability to support herself, can declare dependent and file a tax return with the taxpayer. Both of parents are under the age of 70 and all 3 people are subject to the general tax allowance of NT$ 88,000 per person.
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(3) |
Shanghai Residents The taxpayer is a single child, and one of the parents has reached the age of 60 and can apply for a special additional deduction for elderly care for RMB 24,000 per year. (a) Individual Income Tax for Salaries and Wages
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Case Two: Married (Single Party Earning) |
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1. |
Parents Under 60 Years Old and Have Ability to Support Themselves | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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[Example 3] The taxpayer is married, and the spouse has no income. The taxpayer and the spouse are single child. The taxpayer has a child over 3 years old and lives with his parents. Father is 62 years old and mother is 58 years old. The spouse's father is 60 years old and the mother is 55 years old. |
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(1) |
Hong Kong Residents
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(2) |
Taiwan Residents
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(3) |
Shanghai Residents The taxpayer is the single child, one of the parents is over 60 years old. Although the spouse's father is also over 60 years old, the number of elderly dependents is not affecting the special additional deduction. As single child can apply for a deduction of RMB 24,000 per year. A child of a taxpayer who has reached the age of 3 to meet the special additional deduction standard for children’s education can apply for a deduction of RMB 12,000 per child per year. (a) Individual Income Tax for Salaries and Wages
(b) Individual Income Tax for Annual One-off Bonus
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2. |
Dependent Parents and Dependent Spouse’s Parents | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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[Example 4] The taxpayer is married, and the spouse has no income. They all are the single child and have two children which are age 9 and age 4. The taxpayer lives with his parents, his father is 70 years old and his mother is 65 years old. The spouse's parents are over 70 years old. |
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(1) |
Hong Kong Residents
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(2) |
Taiwan Residents
(a) For total eight persons including the taxpayer, spouse, 2 children and 4 retired parents, five of them which can apply the general exemption of NT$ 88,000 per person, and three of them which are over 70 years old can apply the general exemption of NT$ 132,000per person. (b) One of the children is under 5 years old and can use the pre-school children deduction of NT$ 120,000. (c) The basic living expense different of NT $ 204,000 can be deducted from the income: Total basic living expenses-(Exemption amount + Standard /Itemized deduction amount + pre-school children deduction + Physically or mentally challenged person deduction+ Savings and investment deduction + Education and tuition deduction) = 175,000 * 8 - (836,000 + 240,000 + 120,000) = 1,400,000 - 1,196,000 = 204,000 |
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(3) |
Shanghai Residents (a) Individual Income Tax for Salaries and Wages
Items
Amount（RMB）
Annual One-off Bonus
36,000
Taxable Income
36,000
Tax Rate
3%
Quick Deduction
0
Tax Payable for Annual One-off Bonus
1,080
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| 3. | Supported Parents (Unsupported Spouse’s Parents) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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[Example 5] The taxpayer is married without siblings, and his spouse has no income. They have two children which age are 15 and 10 years old. The taxpayer does not live with his parents, his father is over 70 years old, and his mother is over 65 years old. |
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(1) |
Hong Kong Residents
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(2) |
Taiwan Residents The basic living expense different of NT $ 204,000 can be deducted from the income: Total basic living expenses-(Exemption amount + Standard /Itemized deduction amount + pre-school children deduction + Physically or mentally challenged person deduction+ Savings and investment deduction + Education and tuition deduction) = 175,000 * 6- (572,000 + 240,000) = 1,050,000 - 812,000 = 238,000
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(3) |
Shanghai Residents The calculation for this example is same with [Example 4]. Please refer to [Example 4] for the tax payable. |
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| Case Three：Married (Both Parties Earning) | ||||||||||||||||||||||
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1. |
Parents Under 60 Years Old and Have Ability to Support Themselves | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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[Example 6] The taxpayer is married with one child over 3 years old, and they have the same salary. The taxpayer lives with his parents. His father is 62 years old and his mother is 58 years old. The spouse's father is 60 years old and the mother is 55 years old. |
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(1) |
Hong Kong Residents The taxpayer and the spouse can choose to file separate assessment or joint assessment. The Hong Kong IRD will automatically calculate the taxpayer's tax through to compare the results of the two method and choose one whichever is lower. (a) If the husband and wife file a joint assessment, details of the salaries tax payable as below
(b) If the husband and wife file separate assessment, the details of salaries tax payable by the husband as below
(c) If the husband and wife file separate assessment, the details of salaries tax payable by the wife as below:
Under above situation, no matter whether the husband and wife choose to file separate assessment or joint assessment, they are not required to pay salaries tax. But comparing the tax payable before enjoying the tax relief, the tax payable of HK $ 31,300 for separate assessment (15,300 + 16,000) is lower than the tax payable of HK $ 49,150 for joint assessment, the tax payable should be the lower one. |
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(2) |
Taiwan Residents The taxpayer and spouse can choose to calculate the tax separately and then make a comprehensive declaration, or they can choose to jointly calculate the tax and make a comprehensive declaration. . Taxpayer’s and spouse’s mothers are under the age of 60, so they cannot declare the dependent, so, the taxpayer, his spouse and their parents should file separate tax declaration for themselves. For the taxpayer, his spouse and one child, there persons in total, the general tax allowance of NT $ 88,000 per person will be applied. (a) Joint Declaration
The basic living expense difference formula calculates the difference of NT $ 21,000 and can be deducted from the income: (b) If the husband and wife file separate assessment, the details of salaries tax payable by the husband as below
(c) If the husband and wife file separate assessment, the details of salaries tax payable by the wife as below:
(d) If the husband and wife file separate assessment, the total tax payable is NT $ 223,800 + 154,00 = 377,800. Comparing the tax calculation, the tax payable for separate assessment is NT$377,800 which is lower than the tax payable for joint assessment amount NT$593,900. The final tax payable is NT$ 377,800. The average tax payable for husband and wife is NT$188,900. |
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(3) |
Shanghai Residents The calculation of China's individual income tax does not take the family as the unit, and the taxpayers who obtain individual income shall declare the individual income tax. Both husband and wife are single child, and all their fathers are over 60 years old, so both can apply for a special additional deduction for supporting the elderly with single child. Taxpayers can apply for a special additional deduction for children education of RMB 12,000 for children over the age of three. 50% will be deducted for both or 100% in full for one of them can be applied. In this example, the taxpayers deduct 50%, which is RMB 6,000. (a) Individual Income Tax for Salaries and Wages
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| 2. | Dependent Parents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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[Example 7] The taxpayer is married, the husband and wife have the same salary, and they are single child. They have two children who are 4 and 9 years old. The taxpayer lives with his parents, his father is 70 years old and his mother is 65 years old. Spouse’s parents are over 70 years old. |
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(1) |
Hong Kong Residents (a) If the husband and wife file a joint assessment, details of the salaries tax payable as below
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(2) |
Shanghai Residents The calculation of China's individual income tax does not take the family as the unit, and the taxpayers who obtain individual income shall declare the individual income tax separately. Both husband and wife are single child, and all their fathers are aged over 60, so both can apply for a special additional deduction for supporting the elderly with single child. Two children of the taxpayer who aged over 3 to meet the special additional deduction standard for children ’s education which can apply for a deduction of RMB 12,000 per child for the whole year. It can be deducted in full by one or 50% respectively. In this example, the taxpayers deduct 50% or RMB 12,000. The calculation for the husband and wife to declare separately is the same as [Example 3], and the results are as follows:
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(3) |
Taiwan Residents The taxpayer and spouse can choose to calculate the tax separately and then make a comprehensive declaration, or they can choose to jointly calculate the tax and make a comprehensive declaration. 8 people including taxpayer and spouse, 2 children, and 4 parents. 5 of which are applicable to the general exemptions of NT $ 88,000 / person, and the remaining 3 persons which aged 70 or above are applicable to NT $ 132,000 for long-term elderly care deduction. (a) Joint Declaration
The basic living expense difference formula calculates the difference NT $ 324,000 which can be deducted from the income: Total basic living expenses - (General exemptions + Standard / itemized + Pre-school children deduction + Physical or mentally challenged person deduction + Savings and investment deduction + Education and tuition deduction) = 175,000 * 8- (836,000 + 240,000) = 1,400,000-1,076,000 = 324,000 The applicable tax rate is 30% after applying the pre-school children deduction, so the pre-school children deduction cannot be used, and the net taxable income should be returned and adjusted. (b) If the husband and wife file separate assessment, the details of salaries tax payable by husband as below:
(c) If the husband and wife file separate assessment, the details of salaries tax payable by wife as below:
(d) If the husband and wife file separate assessment, the total tax payable is NT $ 223,800 + 30,360 = 254,160.
Comparing the tax calculation, the tax payable for separate assessment is NT$254,160 which is lower than the tax payable for joint assessment amount NT$337,400. The final tax payable is NT$ 254,160. The average tax payable for husband and wife is NT$127,080. |
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Disclaimer All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage. |
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