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:
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.
Sections in TAXATION IN CHINA:
» Overview of Tax Issues for Expats in China
» Employment Taxation for Expats in China
» Business Taxation for Expats in China
» Investment Taxation for Expats in China
» Tax Treaty Considerations for Expats in China
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