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Employment Taxation for Expats in China

Submitted: April 2014

Residence

As an expat working for less than 90 days (not necessarily continuously) in any one year, you will be exempt from Chinese individual income tax (IIT). The 90 day threshold is increased to 183 days if your country of origin has a tax treaty with China. If you stay longer than 90/183 days, you will be liable for tax on any income paid by an employer based in China for services carried out in the country.

You will be considered resident once you have stayed China for 365 days in one calendar year, without having been absent during that year for more than 30 days at any one time, or more than 90 days divided over the year. Residency will apply from the beginning of the following year for the next five years. As resident you will be taxed on any income earned in China, and any income earned abroad which is paid by a Chinese employer. If you reside in China for a period of more than five years you will be liable for IIT on your worldwide income from the beginning of the sixth year.

Expats who take up directorships or other senior level jobs in Chinese-based companies are liable to tax on the Chinese earnings immediately. 

Tax rates and allowances

The Chinese tax year runs from 1 January to 31 December. Your employer will deduct tax from your wages or salary on a monthly basis.

China is unusual in that personal tax allowances are based on a monthly rather than yearly amount. Currently the monthly allowance is ¥3,500. Expats also receive an additional allowance of ¥1,300. There are also various deductions that can be set against your income. Once your taxable income has been calculated, the actual income tax payable will be calculated by applying the rates in the table below and then subtracting what is known as the quick deduction which varies with each threshold.


Monthly taxable income (¥)

Rate

Quick deduction (¥)

0  to  1,500

3%

0

1,501  to  4,500

10%

105

4,501  to  9,000

20%

555

9,001  to 35,000

25%

1,005

35,001  to 55,000

30%

2,755

55,001  to 80,000

35%

5,505

Above 80,000

45%

13,505


It is traditional for Chinese companies to pay an end of year bonus in the form of an extra month’s pay in the last month of the lunar year which precedes Chinese New Year (usually in February). If applicable to you, this will generally specified in your contract.

You may be required to submit an annual IIT declaration (tax return) to the local tax office within three months of the end of the financial year if any of the following apply:

  • your annual income exceeds ¥120,000
  • you receive income from two or more employers
  • you do not have a withholding agent (generally this will be your employer)
  • you receive taxable income from outside China
  • your income is received in several separate payments relating to one service remuneration, author’s remuneration, royalty or property lease.

Self-employment

There is a separate tax regime for “self-employed” businesses described as individual industrial and commercial households (the classic shophouse). The regime also applies to income earned by investors of single proprietorship and partnership enterprises from production and business operations. The taxable income for these operations is calculated as gross annual income, minus costs, expenses and losses. The actual income tax payable will be calculated by applying the rates in the table below, and then subtracting the quick deduction.

Monthly taxable income (¥)

Rate

Quick deduction (¥)

       0    to   5,000

  5%

      0

  5,001  to 10,000

10%

   250

10,001  to 30,000

20%

1,250

30,001  to 50,000

30%

4,250

     Above 50,000

35%

6,750


In order to be subject to this regime, you must apply for a business license. Licences are valid for a minimum of six months and a maximum of four years. One month before the expiry of the licence, you can apply for a new one. The application procedure is complex, there is some guidance here, and the relevant law is here.

 

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