| 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 5% to 45% (for
the part of your salary over 100K rmb/month). Chinese nationals don't have to pay tax over the first 2000RMB 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: How to pay less tax in China
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: 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 5000-20000) = 1040 - 375 (quick deduct) = 665 RMB tax per month. Because your employer should already withhold the tax, you should receive 9335 RMB in your bank account. (that amounts to about 7%)
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:
The amount for items 6 and 7 is based on the actual costs. 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 665 RMB tax (see IIT above), but now you will get a tax-break of 20% of 2000RMB (400 RMB), so you will only pay 265RMB tax in a month! If your houserent is for example over 1325 RMB/month, that would mean you pay no IIT tax at all anymore!
The procedure works like this:
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