1) As I would tell my Accounting students: Accounting and taxes are not about numbers but are about words, concepts, regulations, rules, laws, conventions and language. Accounting is not about numbers.
2) On August 31, 2018, the Amendment to the Individual Income Tax Law ("Individual Income Tax - IIT") was officially approved. Some of the regulations will be implemented from October 1, 2018 and the whole amendments will be implemented from January 1, 2019.
3) The officially approved Amendment does not address the "five-year rule." This has a serious impact the taxation of expats who live in China. The "five-year rule" provided expats a legal path to avoid paying China IIT on income sourced outside of China and completely unrelated to China.
4) Do not conflate the China IIT scheme, reformed, revised and approved, and the revised nexus the elimination of the "five-year rule" presents. There is a difference and, as best I can tell not holding a China license to advise or prepare IIT tax returns, the loss of the "five-year rule" creates a potentially huge impact on expats with income sourced outside China.
5) In the past, retirement income was not taxed. From Dezan Shira’s “China Briefing” January / February 2005: “Moreover, the tax bureau does also confirm that Foreign income derived from company or Government pension, is NOT taxable income in China.”
***Be aware, each Tax Bureau can, or could, make decisions independently from SAT and there was, in the past, a lack of consistency.
I cannot find a current, definitive answer for foreign sourced retirement income. I did find this (quoted with English errors, no corrections, see 1) above) September 07, 2018:
“For China tax resident, Currently the IIT law did not clearly state whether the pension abroad should be taxed in China.We’re hoping the upcoming release of the detailed IIT regulation will have a more detailed explanation on that.
For non-China tax resident , we would need to judge the situation according to the tax treaty signed with China – in most cases, for non-China tax residents, the pension would not need to be taxed in China.
As for your last question – there is no additional tax relief for pensioners, meaning Chinese retirees are not taxed”
6) This statement, aside from being unclear who is making it, is incorrect:
@Ishmael: "has no effect on expats staying here (with, for example, tourist visas) who are not employed".
In fact, the "five-year rule" specifically targets “expats staying” in China in order tax them even if they are “not employed.”
7) This statement is incorrect:
If such person manages to live in China without breaking the 5 year rule, then China will have legal basis to claim tax in worldwide income of said person.
The "five-year rule" is not a rule to be “broken.” It is an IF, Then, OR rule. Although it may no longer exist, "five-year rule" it was: IF an expat lived in China for five years, THEN China IIT tax must be paid on worldwide income beginning in year six, OR, the expat could spend at least 30 consecutive days outside China to reset the “five-year” period to avoid taxation on worldwide income.
The concept of a “legal basis to claim tax” tax is amusing. Tax laws, and regulations, stand as the basis to tax. They are the law.
8) Tax treaties, if any, between China and your home country also affect treatment of income sourced outside of China.
9) Sorry to be pedantic but these tax laws must be understood and followed. I am no expert on China’s IIT. The "five-year rule" affected me personally hence my interest. Each individual has his or her own set of facts which determines how he or she will be taxed. I offer only information and caution.