How China’s new individual income tax amendment affects charitable donations

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On the 31th of August, the fifth session of the 13th National People’s Congress’s standing committee passed an amendment act on the Individual Income Tax Law. The newly revised Individual Income Tax Law will come into effect in January 2019.

According to article 6 of the new Law, “the amount of money for donations that do not exceed 30% of the taxable income declared by taxpayers can be deducted from their taxable income, on condition that the income is donated to charitable causes such as education, poverty alleviation, and relief. The provision stipulated by the State Council that a full pre-tax deduction can be made for charitable donations shall prevail”. Compared with the old article, the newly revised one affects charitable donations in three ways:

1. It changes the term public welfare undertaking (公益事业) to public welfare and philanthropic undertaking (公益慈善事业), and adds poverty alleviation and relief, when before only education was mentioned. This reflects the connection with the Charity Law.

2. It adds that full pre-tax deductions can be implemented with the approval of the State Council, which provides a legal basis for more preferential tax incentives for charitable organizations in the future.

3. The 30% pre-tax deduction ratio was originally stipulated in the implementation regulations of the Individual Income Tax Law, and now it is raised to the level of the law itself, which is more conducive to future implementation.