Much like social security, individual income tax in China has been the subject of consistent change and revision. Tax in China is even more complicated by the fact that the system is multi-dimensional, hosting different rates and applicable taxes depending on the pay scale and the duration of your time in China. Moreover, expats considering moving to China should be aware that, alongside the US, China is one of the only countries in the world that charges tax based on worldwide income.
Individual income tax in China for expats is premised on four thresholds. Below you will find a brief description of each:
Expats should note, however, that the above thresholds are only applicable if one stays solely within Chinese borders for the duration of their stay. This means that, if the expat is in his third or fourth year of living in China and they leave for more than 90 consecutive days, or 30 in a single trip, then they would automatically drop back down to the 1 year threshold and avoid advancing to the 5 year threshold of tax in China.
Tax in China is premised on a progressive rate, beginning with 3% on income of between 1-1,500 CNY, 10% on income of between 1,501 -4,500 CNY, up to 45% on income over 80,001. The rate of tax in China for freelancers is also progressive, and ranges from 20%-40% depending on the bracket one’s income falls into. However, expat employees will be happy to hear that they are allowed a deduction of 4,800 CNY a month when totaling their net income. This contrasts with the Chinese national, whose deduction stands at only 3,500 CNY.
All expats working in China have to register with the local tax office. They might also have to lodge a tax form, alongside copies of the stamped pages of their passport to proof their date of entry and a certificate from their employer outlining their salary. Luckily, most expats will find that their employer will act as a withholding agent, automatically deducting your tax from your wages.
However, there are quite a few cases in which expats will have to file their own tax return. If they aren’t within the withholding system or if they receive their salary from a source outside of China, expats will have to file their own monthly and annual tax return and pay the relevant authority.
In the following cases they will also have to file their own annual return:
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