Individual Income Tax Reform – The “Six-Year" Rule

New IIT Laws for the “Six-Year" Rule 

The new IIT laws replaces the old "five-year" lookback period rule with a "six-year" rule to adapt to the new definition of resident that uses the 183-day test. 

Under the new IIT laws, the six-year rule refers to a non-domiciled individual will be subject to Chinese tax on his/her worldwide income derived in a calendar year from the seventh consecutive year, in which the individual stays in China for more than 183 days, if: 

• in each of the preceding six consecutive years the individual has stayed in China for more than 183 days; and 
• has not been outside China for a single trip of more than 30 days in each of the preceding six consecutive years. 

The six-year count will be reset if the non-domiciled individual spends more than 30 consecutive days outside of China during any tax year. 

Noting Points 

Summing up the above, to avoid being subject to Chinese IIT on worldwide income, below arrangement could be selected, then the six-year count is reset accordingly while the individual's foreign-source income derived in that calendar year is exempt from Chinese IIT to the extent the foreign-source income is paid by a foreign party: 

A single trip of more than 30 calendar days outside China, at the latest in the sixth year of the preceding six consecutive years. 

Further, we would like to draw your attention to that, the six-year clock begins to run as from 2019, irrespective of how many years a nondomiciled individual stayed in China before 2019. In this case, it is the sixth year since 2019, which means the exemption is applied to all nondomiciled individuals on their foreign-source income (if paid by foreign parties) until 2024 (including). Then, if the non-domiciled individual stays in China for more than 183 days in each of the preceding five consecutive years since 2019, a single trip of more than 30 calendar days outside China in the year of 2024 shall be arranged accordingly. 

We remain available should you have any questions. Please do not hesitate to reach out to your Forvis Mazars point of contact.