PRC Tax Law

On 31 August 2018, the Standing Committee of the National People’s Congress passed the amendment to reform PRC IIT Law (“the Amendment which will take full effect from 1 January 2019. The revised standard personal deduction and tax rates table will apply from 1 October 2018.

Key amendments

• Expenditures on supporting the elderly allowable for personal tax deduction
• Deemed expense deduction allowable for income from provision of independent personal services, author’s remuneration and royalties at 20% of gross income: Deemed expense at the rate of 20% of gross income will be allowed for income from provision of independent personal services, income from author’s remuneration and income from royalties. Income tax on author’s remuneration will be assessed on 70% of the net income after deducting the 20% deemed expenses.
• Charitable donations allowable for tax deductions: Charitable donations not exceeding 30% of one’s gross taxable income are allowable for tax deduction. Donations made to certain charities may not be subject to the 30% deductibility cap if approved by the State Council.
• Withholding agents shall furnish tax withholding statement to individual taxpayers: In order for individual taxpayers to lodge accurate annual tax reconciliation return, withholding agents shall furnish details of the amount of tax withheld, and other relevant information to individual taxpayers.

Hong Kong New Tax Rules on Research & Development Expenditure

The new Hong Kong tax rules classify R&D expenditure into two broad categories (Type A and Type B) which are deductible subject to meeting certain conditions. Type A expenditure qualifies for a basic 100% tax deduction. Type B expenditure qualifies for an enhanced two-tiered tax deduction (300% for the first HK$2m and 200% for any remaining amounts).
Many organizations in Hong Kong are already conducting R&D activities, and such costs are usually embedded within their salaries and wages, expenditures or capital assets. Under the new R&D regime, payments to designated local research institutions, direct wages and consumables could qualify for the enhanced tax deduction.