|Individual Income Tax China|
This guide helps you to understand income tax in China and even provides tips how to pay less tax! Individual Income Tax (IIT) is a form of tax you have to pay over your salary in China. Your employer should already withhold the correct amount of tax so for individuals it's very easy. The tax levels in Shenzhen/China progressively increase from 3% to 45% (for
the part of your salary over 100K rmb/month). Chinese nationals don't have to pay tax over the first
update 10th July 2011, new tax rates from September 1st 2011 added.
How to pay less tax in China
Old monthly IIT rates for employment income valid until the 1st of September 2011:
New Monthly IIT rates valid from 1st of September 2011:
The formula for computing the amount of tax payable is:
Monthly taxable income = Monthly aggregate wages/salaries - 4800 yuan (foreigner)
Monthly amount of tax payable = Monthly taxable income ×Applicable rate (see table above) - Quick deduction
An example (based on new law from Sept 1 2011):
Suppose you earn 10.000 RMB/month in China as a foreigner;
Your monthly taxable income is then 10.000 - 4800 = 5200 RMB. 5200 RMB * 0.20 (20% tax rate for 4500-9000) = 1040 - 555 (quick deduct) = 485 RMB tax per month. Because your employer should already withhold the tax, you should receive 9515 RMB in your bank account. (that amounts to about 5%)
Another example, for 20.000 RMB/month as a foreigner:
20.000 - 4800 = 15200 RMB. 15200 RMB * 0.25 (25% tax for 9000-35000) = 3800 - 1005 (quick deduct) = 2795 RMB tax per month. You should receive 17205 RMB in your bank account (that's about 16% tax)
How to pay less IIT tax in China
I think the Chinese tax-system is already quite reasonable (for example lower levels than in the Netherlands), but you can pay even less tax if you pay for certain expenses and have invoices for them. Tip: start asking those invoices in restaurants and save them!
The Chinese government has a tax-benefit program for foreigners in China.
You can only benefit from this program via your employer (that means: you
employer needs to arrange it). The "Expatriate IIT relief" allows
you to declare certain costs (such as food, steam drying clothes, one
time moving fees, children's tuition etc). Because you already paid tax
over those items, they allow you to pay less tax over your income. So
for example when you hand in 1000RMB worth of official invoices (fapiao) for eating in a
month to your HR department, you can pay 200RMB (20% of of 1000)
less in personal income tax (your HR department deducts that 200 from
the amount of tax you pay). I guess that one time moving fees work
the same: you would hand in the airplane tickets and perhaps shipping
invoices etc (up to a limit based on your salary). Your company can
then deduct that from your personal income tax. Because you get the
money "back" via personal income tax, and because your employer
already deducts the tax for you, you need their help with it. I suppose
your employer needs to apply once to the government to take part in
this plan, but I'm not sure about this.
The exact list of items:
The amount of money you can declare, depends on your salary. The table below shows the details:
Before July 2010:
The amount for items 6 and 7 is based on the actual costs.
After July 2010:
Example based on old rules (before July 2010) :
So for example you earn 10.000 RMB per month. That means you can hand in 2000 RMB worth of invoices from restaurants each month. You can also add your utility + rent bills and whatever is applicable to the housing allowance. The total should be below 5300 though. For example you hand in 2000 RMB in total. Normally you would pay 485 RMB tax (see IIT above), but now you will get a tax-break of 20% of 2000RMB (400 RMB), so you will only pay 85RMB tax in a month!
update november 2010: the official Shenzhen Tax Bureau website in English . This policy is described in the article Preferential Policy -> Provisions for the Reduction and Exemption of the Individual Income Tax
update july 2011: new regulations are under way that will mean that all foreigners working in China will have to pay for social welfare insurance. Final policy has not yet been announced and a lot is uncertain about the new rules. It will significantly lower salaries for foreigners and increase costs for employers. [source ]
The procedure works like this:
Who needs to pay tax anyway?
If you are from a country that signed a tax-agreement with China (most of the EU, Canada, USA), then you only need to pay IIT in China if you stay more than 183 days per year in China. If you stay 184 days or more per calendar year, you will be taxed for the whole year. Countries that didn't sign an agreement with China have the same rule but then use 90 days instead of 183. China Briefing has a nice overview of the countries.
|Last Updated ( Sunday, 10 July 2011 )|
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