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Overview of Tax Issues for Expats in China

Submitted: April 2014

The Chinese tax year runs from the 1 January to the 31 December.

Tax Residence

If you are working in China for less than 90/183 days (depending on your country of origin) spread over one year, you will be exempt from Chinese individual income tax (IIT). If you stay any longer, you will be liable for IIT on Chinese source earnings. Generally once you have stayed in China for longer than a year, you will become a resident, and also have to pay tax on any income earned overseas which is paid by a Chinese employer. If you stay as a resident for longer than five years, you will become liable for IIT on your worldwide earnings. If you arrive in China take up a senior level position in a Chinese-based company you will be liable for IIT on Chinese source income immediately. For more details, see: Taxation - Employment Taxation for Expats in China.

Employment/Business Taxes

IIT is deducted by your employer in the same way as it is in a country with a Pay As You Earn system. However the tax allowances are based on a monthly amount. Tax rates are between 3% and 45% depending on the level of your earnings. Expats receive an extra monthly allowance. You may have to fill in a tax return after the end of the year to calculate the final amount of tax payable, depending on your circumstances. For more details, see: Taxation - Employment Taxation for Expats in China.

If you come to China to set up in business and start a company you will be liable to enterprise income tax (EIT) on your trade or business profits. The general rate of EIT is 25%, but there are lower rates of 20% and 15% for certain small companies. You must incorporate and register your company with the State Administration for Industry via a legal representative or agent. Companies must pay tax on either a monthly, or quarterly basis, depending on the nature of the company. An end of year tax return must be produced within 5 months of the year end. For more details, see: Taxation - Business Taxation for Expats in China.

Other taxes

China generally imposes tax at a rate of 20% on capital gains, interest and dividend income arising in China. There are some exceptions to the 20% rate. For non-residents, the rate is generally reduced to 10% if your country of origin has a suitable tax treaty with China. Rental income is also taxed at 20%, but is calculated after a deduction for costs associated with renting in the case of residential property. Residents will also be taxed on such income earned abroad. For more details, see: Taxation - Investment Taxation for Expats in China.

Tax treaties

China has signed tax treaties with over 90 countries. The treaties mean that the amount of withholding tax charged on money flowing in and out of China is reduced. Generally the amount that can be charged under a treaty is reduced to 10%. For more details see: Taxation – Tax Treaty Considerations for Expats in China.

 

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