Individual income tax incentives for GBA - Guangzhou implementation guidance

On 7 June 2021, several Guangzhou municipal authorities jointly issued implementation guidance (Suicaiguizi [2021] No. 1) for the Guangdong-Hong Kong-Macau Greater Bay Area (GBA) preferential individual income tax (IIT) incentives for the years from 2020 to 2023. This will help businesses to access the incentives. 

In 2019, the Ministry of Finance and the State Taxation Administration introduced Circular Cai Shui [2019] No. 31 setting out GBA preferential IIT policies which take the form of subsidies. Subsequently, the competent authorities in Guangdong and Guangzhou issued implementation guidance - Yue Cai Shui [2019] No. 2 and Suicaiguizi [2019] No. 5 (Circular No. 5). The two Circulars were implemented on a pilot basis from 1 January 2019 for a one year period, which was then extended in provincial-level implementation guidance from the Guangdong province finance department and other authorities at the end of 2020.

Now the Guangzhou municipal authorities have issued guidance in Suicaiguizi [2021] No. 1 (Circular No. 1, based on the expired Circular No. 5 ) to regulate incentives implementation in Guangzhou for the years from 2020 to 2023. For details of the GBA’s preferential IIT policies, please refer to previous KPMG Tax Alerts.

Major changes

• Compared with Circular No. 5, Circular No. 1 makes the following major changes:

Validity of Circular No. 1

Circular No. 1 is effective from 1 January 2020 to 31 December 2023.

Drawing on implementation status in 2019, Circular No. 1 made improvements to the lists of foreign individuals with high-end and urgently-needed skills for the preferential IIT treatment on the basis of the expired Circular No. 5. We would suggest that businesses to consider the following points:

1. “Working in Guangzhou for a minimum of 90 days during a tax year” is a critical requirement for subsidy application. The authorities seem to be taking a strict approach starting from the application for the 2020 subsidy, while the travel diaries was not required in the application for the 2019 subsidy. As such, applicants working under dual-employment arrangements or those who frequently travel outside of Guangzhou should keep track of their travel days and summarise their working days in Guangzhou during the tax year concerned in order to assess whether they meet the requirements. 
2. Applicants are recommended to get well prepared in advance (e.g. ensure to secure “talent” qualification” in the tax year concerned) to avoid missing the subsidy application for that year. It should be noted that a number of authorities have already tightened the application requirements for “talent” qualification.
3. Having PRC IIT filed and paid correctly is an important pre-requisite for the subsidy application. This requires employers and their employees to be familiar with the incentives and work together to ensure compliance. In dealing with 2019 subsidy applications, we observed that a number of obstacles exist hindering the applications to proceed. For instance, failing to file monthly/annual IIT returns properly and timely; employees were reluctant to assist employers to get the subsidy in the case where their IIT was borne by the employers. With all these considerations in mind, businesses need to engage with foreign employees and get all relevant documents prepared in advance, and get the IIT filing completed in compliance with regulations, to secure the success of the subsidy application. 

KPMG will continue to update you on the latest developments related to GBA policies in other cities, while providing our own observations and insights.  If you have any questions, please contact us.