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Taxation in China
Individual Income Tax
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.
Who Pays What
Individual income tax in China for expats is premised on four thresholds. Below you will find a brief description of each:
- Less than 90 days, or 183 days if China has a taxation treaty with the country of origin: The individual will be taxed on income made in China, but only if the paying authority is a Chinese authority. They are exempted from paying tax on income paid by an overseas authority and worldwide income.
- Between 90/183 days and less than 1 year: This individual must pay tax on all income made in China, be it from a local entity or an overseas one. They are also exempted from worldwide income.
- Between 1 and 5 years: The individual must pay tax on both income made in China and on worldwide income, but only if the paying authority is Chinese. If the paying authority for worldwide income is an overseas entity, then they are exempt from tax.
- More than 5 years: The individual must pay tax on all income, both that earned in China and that earned worldwide, regardless of who the paying authority is.
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:
- Their annual income exceeds 120,000 CNY.
- They receive income from two or more sources in China.
- They receive income from outside China.
Other Important Taxes
- Lump sum tax: Expats who receive a high single payment for their services are subject to further tax in China. Payments of between 20,000 CNY and 50,000 CNY is subject to an additional charge of 50% of the normal tax rate paid by the individual. Anything over 50,000 CNY is subject to an additional charge of 100% of the individual’s normal rate.
- Capital Income Tax: After deductions, the standard rate for capital income tax in China is 20%. However, this might be lower if the expat is a resident of a country with which China has a tax treaty.
- Business Tax: Businesses in China are subject to a host of taxes, from corporate income tax to capital gains tax, but basic business tax in China ranges from 3%-20%.
- VAT: Like most countries, tax in China includes VAT. The standard rate is 17%.
We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete.