Individual income tax in China
is the tax paid on personal income
, being distinct from the tax paid on the company's earnings. Normally, the remuneration obtained by a foreign employee while working in China (paid by domestic/foreign companies or other employers) is considered income derived from China. IIT (individual income tax) is paid depending on how much the expat in China earns, who bears his/her income, how long he stays here and the positions the expat holds within his/her home country and in China.
In this country, Individual Income Tax Law
presents eleven categories of income, each of it having different deductions, tax rates, and exceptions that apply to each of them.Our Chinese attorneys
can offer detailed assistance on the matter if you are interested in the conditions of taxation on individual income in China
The level of income in China
The parts of the expat's remuneration deemed to be taxable income by Chinese local authorities are the base salary, cash allowances, contributions to an overseas insurance scheme and incentive compensations (commissions and bonuses). Moreover, the taxation rate levied on taxable income depends on its total amount accumulated. A progressive tax system is adopted in China where the tax rate for employees progresses in seven levels from 3% to 45% whereas for entrepreneurs' income it has three levels, from 20% to 40%.
Tax exemptions for expats (4800 RMB - Chinese currency, Renminbi) and for Chinese residents (3500 RMB) are granted from their wages. In addition, for each individual taxation rate, there is a quick deduction amount which will be exempted for this level of taxable income. Individual income tax amount in China is calculated as it follows:
(Gross Monthly Taxable Income– 4800 RMB) * Tax Rate.
Our Chinese lawyers
will provide further details regarding the calculus of IIT in China and other useful information.
Duration of stay in China and payment source
In order to determine if a foreign individual working in China
is subject to IIT, it is necessary to look at the amount of time spent in China, the source of income and where the employer is based. Consequently, foreign entrepreneurs residing in China for less than 12 months are subject to IIT on their Chinese-source incom
e only. Salaries, from international employers to individuals working here, are exempt from tax if the individual stays in China for less than 90 days per year on the condition that the remuneration is paid or borne by a Chinese establishment.
The 90-day period can be extended to 183 days if the individual has the right to protection under a relevant tax arrangement or treaty
. On the other hand, in order to reduce tax liability, if certain conditions are fulfilled, employees of foreign employers can be taxed based on the number of days of residence in China. Our lawyers in China
will provide further tips and information regarding IIT.
Entrepreneurs who only reside here (with no domicile in China) between 1 to 5 years must pay IIT for income received from both foreign and Chinese employers for work conducted here (China-sourced income) and for income paid by domestic employers during temporary absences from China. Furthermore, from the sixth year onward, foreign individuals will be taxed on their global income for each year of residence in China