Individual Income Tax China - Shenzhen Life - Start in China from Shenzhen

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 ~~2000RMB~~ 3500RMB (as of 1st Sept 2011) of their income and foreigners enjoy a tax-free limit of 4800RMB. With the help of the table below, it's easy to calculate how much tax you have to pay in China:

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:

Grade	Monthly Taxable Income	Tax Rate (%)	Quick Deduction (makes calculation below easier)
1	Income of 500 yuan or less	5	0
2	That part of income in excess of 500 to 2,000 yuan	10	25
3	That part of income in excess of 2,000 to 5,000 yuan	15	125
4	That part of income in excess of 5,000 to 20,000 yuan	20	375
5	That part of income in excess of 20,000 to 40,000 yuan	25	1375
6	That part of income in excess of 40,000 to 60,000 yuan	30	3375
7	That part of income in excess of 60,000 to 80,000 yuan	35	6375
8	That part of income in excess of 80,000 to 100,000 yuan	40	10375
9	That part of income in excess of 100,000 yuan	45	15375

New Monthly IIT rates valid from 1st of September 2011:

Grade	Monthly Taxable Income	Tax Rate (%)	Quick Deduction (makes calculation below easier)
1	Income of 1500 yuan or less	3	0
2	That part of income in excess of 1500 to 4,500 yuan	10	105
3	That part of income in excess of 4,500 to 9,000 yuan	20	555
4	That part of income in excess of 9,000 to 35,000 yuan	25	1005
5	That part of income in excess of 35,000 to 55,000 yuan	30	2755
6	That part of income in excess of 55,000 to 80,000 yuan	35	5505
7	That part of income in excess of 80,000	45	13505

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:

Housing allowance
Food allowance
Laundry fees
Fees incurred by family visits
Language training fees
One-time expenses for moving
Children's tuition

The amount of money you can declare, depends on your salary. The table below shows the details:

Before July 2010:

Monthly salary range	Monthly Max Amount for
	1+2+3+4+5
100K and above	21000 (2+3<=3500)
50K-100K below	13000 (2+3<=3000)
20K-50K below	9000 (2+3<=2500)
20K below	5300 (2+3<=2000)

The amount for items 6 and 7 is based on the actual costs.

After July 2010:

Monthly salary range	Monthly Max Amount for
	1+2+3+4+5
100K and above	22300 (2+3<=4000)
50K-100K below	13650 (2+3<=3500)
20K-50K below	9000 (2+3<=3000)
20K below	5700 (2+3<=2500)

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:

Your HR department will ask you to sign an agreement stating that you only hand in real invoices
Before the middle of each month, you hand in an overview of your costs during the previous month + original invoices (fapiao)
The HR department checks the invoices and calculates the tax-deduction (20% of what you hand in).
In your next salary statement you will see the lower tax rate

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.

Comments

Add New

Clive Chin

|222.154.100.xxx |2010-03-29 18:28:24

Hi, Thanks for putting the information about tax. It helped me negotiate a more informed deal with my employer. Thanks for putting all the other useful information in your site. It certainly is helping me plan my move to Shenzhen.
Clive

Dave Carpentier - China Individual Income Tax

|218.74.48.xxx |2010-04-20 16:41:35

I thought that the tax authorities had done away with the food allowance this year. Is this correct or can food expenses still be deducted?

Thanks

Thijs - still ok

|219.133.62.xxx |2010-04-20 19:00:00

It's still allowed; I just handed in the monthly invoices related to food allowances (restaurant fapiao) two days ago

Paul - Information Source

|58.34.3.xxx |2010-05-05 19:02:19

Hello,

Great post! Very comprehensive!!! Can you tell me where you found this information? Chinese and English versions are acceptable although I prefer a Chinese version. It would be great if it was on the State Tax Administration website somewhere.

Thanks,

Paul

Thijs - Via my employer

|219.133.62.xxx |2010-07-14 10:45:29

I got this information from the HR department of my employer (in Shenzhen). Btw, the rules have been updated a bit, I will update the post as well

Richard - Residential Status & Worldwide Income

|88.251.99.xxx |2010-07-13 23:58:55

It has been recommended to me that if I want to live in China for more then 183 days per year then an Representative Office (RO) would be the best option but, if I am not careful, I could potentially expose my worldwide income and gains to Chinese tax. However it also seems that one solution might be for me to form an RO and thereby obtain a resident visa which would enable me to reside in China for extended stays. Provided I was out of China for at least 91 days each tax year, I would seemingly not be considered either domiciled or resident for tax purposes and therefore would only be taxed on income derived within China, which could be quite low (despite other income earned outside China, which would not be taken into account or liable to Chinese tax)

1. Am I right in thinking that having a resident’s visa does not automatically class me as either domiciled or resident for tax purposes?

2. Am I right in thinking that if I am out of China for more than a cumulative total of 90 days in each tax year then I would be considered non-resident for tax purposes and therefore only taxed on my income derived actually within China and not on my worldwide income?

3. Does this 90 days need to be made up of trips exceeding 30 days each for those trips outside the country to qualify towards the 90 days cumulative total?

Thijs - Not sure

|219.133.62.xxx |2010-07-14 10:49:41

Hi Richard, not sure about all the details. I only know about working more than half a year in China, then you need to pay tax in China. I'm not sure how the Chinese would know about your worldwide income though.
Regarding your questions:
1 - I think you are right, but not sure
2 - I believe if you work more than half a year in China (not 90 days outside China) you will be taxed according to Chinese law. For example someone I know lives in Hong Kong, but works in Shenzhen. He therefore works more than half a year in China and has to pay tax according to Chinese rules. HK tax rules are supposed to be much better.
3 - See question 2.
I think it's best to ask a layer about these specialized points!

SH - Income Tax Status if work remotely from China

|115.134.84.xxx |2010-08-11 00:05:22

Hi Thijs,
Found your post very useful. I am getting an offer from a Shenzen company but will work remotely out from China, require to pay a few trips a year to China HQ to report and for meetings. It's most likely I will spend in my home country more than 182 days which I would need to declare my income tax at home. Do I need to pay china income tax too? If yes, then I won't be enjoying the tips that you offered. I would need confirmation on this so that I can negotiate a better offer to cover the additional taxes. Thanks.

Thijs

|219.133.62.xxx |2010-08-11 14:48:19

Hi SH, I think you do not need to pay any income tax in China if you don't physically work in China. Since you don't pay Chinese income tax, you cannot benefit from the advantages listed above. I'm not 100% about this though, best contact the HR department about this. I remember someone mentioned before to me that he wished he worked most of the time in HK, so he could benefit from the low tax levels there.

annie liang - please ,do me a favor

|112.97.117.xxx |2010-09-18 18:49:26

Hi,
Recently,our marketing director moved to China and sent me the document he download from your website.Unfortenately,our accounter didn't find any related information about less tax paid,even they inquire the worker in tax department.No chinese type can be found at present according to our knowledage.I am wondering whether you can do me a favor to tell us the coresponding Chinese materials.We are very appreciated for your help.
Sincerely!

Thijs

|219.133.62.xxx |2010-09-19 10:30:14

Hi Annie, I believe it's officially referred to as "Benefits in kind". For example on this website: http://www.eurochinajob.com/fr/career/38-taxation-of-expatriates-in-mainland-china

"Certain fringe benefits could be exempt from IIT. These include housing, meal and laundry allowances, relocation allowance, home leave allowance, education allowance and motor vehicle expenses. In practice, careful planning is required because the tax authorities may adopt a stringent approach in verifying the reasonableness of such benefits. Supporting documents such as agreements, contracts or valid commercial invoices, etc should be submitted to the tax authorities for review and approval in the first month after receiving such benefits."

annie liang - One more question

|112.97.213.xxx |2010-09-19 16:08:55

According to your file,does it mean foreigner can still pay less tax except 4800 deduction free of tax?If there exits such a "benifit in kind" of drawback regulation after deduction,it refers to the foreign-capital enterprise or could be the foreigner employee?
As for the items such as housing allawance,food allawance,landry fees and so on,they are all deducted from Individual Income Tax.How could it be possible to drawback from the paid tax again?

Thijs

|219.133.62.xxx |2010-09-19 16:42:40

I'm not sure if i understand your question(s) exactly. The 4800 tax-free amount is first deducted. Then you can calculate the monthly amount of tax payable as in the example above. Suppose this 665 RMB tax that you need to pay.

Then every month (before the 15th) I would hand invoices in to HR department. 665*5 = 3325 RMB (20% of this amount is 665). So if I hand in invoices worth 3325 RMB (or more, but useless), I wouldn't need to pay any tax anymore. The HR department verifies the invoices and then calculates how much tax I still would need to pay. Suppose I handed invoices in worth 2000 RMB, then I would get 20% of 2000RMB back = 400RMB. I needed to pay 665 RMB tax so that means I still need to pay 265RMB tax. So you just pay less tax, based on your expenses the previous month. You can never get more money, only pay less tax.

So you can only get as much tax deduction as you actually paid. It only is applicable to foreign passport holders. I don't know if there is a difference between foreign enterprises and Chinese.

Hope that makes it clear?

Rajesh - Hi Thijs

|183.17.86.xxx |2010-09-19 17:28:11

hi Annie and Thijs,

Finally I got the website , which clearly explains that Housing Allowance , Laundry etc. are expempted from Individual Income tax.

Here is the link for you Annie , which clearly explains that:-

http://www.szds.gov.cn/portal/site/site/portal/szds/englishcontent.jsp[contentId=1424][categoryId=3730][siteName=szds][categoryCode=001004017013]

the one I have pasted is in english from the state tax department. For the chinse version you can search it on the same website.

annie liang - Thanks

|183.17.86.xxx |2010-09-19 18:48:09

Thanks for your timely information.Whether the HR department belongs to part of your company ,or it is a govermental department service open to residence? I would be more appreciated if you provide the available phone number so that i can get the related Chinese department in Nanshan district to handle it.

Michiel - everywhere?

|64.120.5.xxx |2010-10-22 23:30:13

Is this a Shenzen-specific thing or does it apply to all of China? If the latter, do you know where to get some documentation on it, like a ruling number or so?
Do you have any idea of how this relates to "Benefits in kind", for example, instead of getting 10000 income which is taxed at so and so rate, could you get say 4800 income (no tax) plus 3200 housing allowance plus 1000 meals allowance plus 1000 transportation allowance, all of which would not be taxed either?
Any of you smart people know where to get some reliable info on this sort of stuff (no, not my/our HR people, they are busy playing with their QQ)?

Thijs

|119.123.21.xxx |2010-10-23 11:48:37

English website: http://www.szds.gov.cn/portal/site/site/portal/szds/englishcontent.jsp (see menu on the left side, item "Preferential Policy" -> "Provisions for the Reduction and Exemption of the Individual Income Tax"

I don't know if this is specific to Shenzhen or not.

In general I just get 20% back of the amount on the invoices. If you would get all your income without tax, that would be more convenient. I still have to pay tax every month, because my Housing allowance + Food allowance together (2500 * 20% = 500RM

is less than the total tax I need to pay.

mummy

|175.156.200.xxx |2011-08-09 01:41:23

Thanks so much for sharing the info..Love this site so much.
Do you have more detailed info on Children's tuition fees, to be exempted from income tax? Is full time elementary school fees included? How about kinder garden school fees?

Thanks in advance!!

Rei - thanks so much

|207.46.55.xxx |2011-11-04 14:57:32

Thanks so much for the very comprehensive info. I now understand how my tax is being computed. I agree with the other comments, this site is very helpful especially for foreigners working in Shenzhen (and has a Chinese spouse). Keep posting! =)

VIVIEN - TAX COMPUTATION

|121.35.188.xxx |2011-11-29 14:18:17

Hi.. Sorry but I think I'm still confuse. My employer explained how he deducts tax from my salary. I am receiving 12,500 which include 1,000 house sudsidy. How much tax shoud be deducted? Do I need to force my emplyer to accept the invoices of my expenses to minimize my tax? Thanks a lot.

Rod	\|113.92.41.xxx \|2012-01-05 09:41:05

Thanks for the information very clear and useful.
this way my Chinese boss cant fool me.

KF	\|70.89.188.xxx \|2012-02-01 00:16:13

Hi

I am in the process of havig my tax submitted for China last year.
I was paid in Ireland but working in China for almost 2 years , on my return I see that I am being taxed on my employers social welfare contribution to the Irish sate and also my contribution , do you know if this is normal?

George

|216.196.155.xxx |2012-02-02 02:21:42

Hi,

I have a question regarding annual bonus tax. My company normally process the tax for annual bonus in Jan. Due to processing error, my annual bonus will come in Feb and missed the opportunity. This means I will have an extraordinary high monthly income for Feb. Is there any way to correct the problem or reduce the tax impact?

Thanks very much
George

Last Updated ( Sunday, 10 July 2011 )

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