Banks & Taxes in China
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A Comprehensive Guide About Opening a Bank Account and Managing Your Taxes
With new eligibility rules for people that want to open a bank account in China and a tax system that can be complex, particularly for self-employed, managing your finance in China can be challenging. However, our guide provides you with the information you need for you to feel confident about money management in China.
While China has fairly generous allowances regarding bringing cash through customs, you’ll still want to get a Chinese bank account. And while just a few years ago the process of opening one only required the applicant’s traveling document, the recent changes made it more challenging.
The tax system is even more complicated. Tax depends not only on your income but the length of time you’ve been in China. The good news is that most employers will handle the income tax for you. However, if not, you will need to spend some time calculating and studying tax law before filing the annual tax return.
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How to Open a Bank Account in China
The how-to for non-residents that want to open a bank account in China used to be simple. All you needed to do was go to the nearest branch of your preferred bank, present your passport, and set up your account. Nowadays, the government has made the rules stricter. The biggest banks of the country will require you to be a resident in China in order for you to set up a Chinese bank account.
What is the Banking System in China?
Individual customers can choose among various commercial banks. However, the state-owned banks, “The Big Four”, are considered to be the best banks in China. They are amongst the largest banks in the world, with over ten billion assets in total. The Big Four is:
- Bank of China (BoC),
- China Construction Bank (CCB),
- Agricultural Bank of China (ABoC),
- Industrial and Commercial Bank of China (ICBC).
These banks usually offer great conditions and savings rates, however, they might be stricter to foreigners that are applying for their services.
There are also numerous smaller commercial banks, as well as local or regional city banks. Most banks are owned by the national or local government. There are few private owners in the banking sector.
Since the country joined the World Trade Organization in 2001, many restrictions on international banking in China have been lifted. That is why some of the international banks(Australia and New Zealand Banking Group, JPMorgan, Standard Chartered, etc.) operate in the country as well.
It is important to note that most government-owned banks have higher requirements for foreigners that wish to open a bank account in China. Smaller commercial banks might be little more lenient, however, finding one that will not require you to be a resident in the country is very rare.
How to Overcome the Language Barrier
The language barrier might be one of the reasons to choose a foreign or one of the bigger banks in China. These ones usually have both Chinese and English websites, and there’s a good chance they will have English-speaking staff. If the branch office is located in an expat neighborhood or near a university campus, you’re even more likely to meet an English-speaking employee at the bank.
Please be aware, however, that it’s important to choose a branch near your home or workplace. Your account is usually tied to the specific branch office, and there are some things you can only do in person at the bank. If you aren’t sure about the language issue at a nearby branch, call ahead and set up an appointment. That way, someone fluent in English will be there to help you set up your account.
If you don’t live in one of the metropolises, the language barrier may be a more serious problem. If you don’t speak any Mandarin, you may want to ask a trusted friend to accompany you and help you translate or fill out the forms.
What are the Common Types of Bank Accounts?
You can check the bank’s website beforehand to find out what products and services they offer. If you opt for a Chinese bank, you most likely will need an “all-in-one account” at the BoC and the ICBS, or an “RMB and Foreign Currency Demand Deposit Account” at the ABoC. These accounts allow you to:
- deposit money in Chinese currency and several foreign currencies;
- withdraw cash via the ATM network;
- transfer money both within the country and abroad;
- set up automatic payments such as for utility bills.
If needed, make sure to request online banking and mobile services from your bank in China.
Best saving accounts with the highest interest rates are offered by The Big Four as well as more international banks like HSBC and Standard Chartered.
The Process of Opening an Account in China
As mentioned before, most banks will require you to present a proof of residence in order to set up a bank account. As every visitor has to get a temporary residence within 24 hours of arriving in China, presenting proof for your short-term stay should always be possible, even if it’s only your hotel address. However, in most big banks of the country, temporary residence permit does not make you eligible to apply for a bank account.
However, if you have declared permanent residency in China, banking here shouldn’t be an issue. Once you have chosen a conveniently located branch office and their services of choice, you should go there with all the necessary paperwork. The required documents to open a bank account in China are:
- valid personal ID;
- proof of residence;
- deposit money;
- work permit or student visa that allows you to stay in the country for one year or more (in rare cases, less than a year is acceptable as well)
Some banks also require you to have a Chinese phone number.
You will also need to fill out an application form which, in most cases, is bilingual (English and Chinese). If you do not present these documents, your application might be denied. That is why, if you are not sure about your options, contact your branch of choice to inquire about the necessary documents.
Typically, banks do charge a monthly fee for the account’s maintenance, which starts at about 10-20 CNY per month. However, it is not always the case. A lot of banks offer accounts with maintenance fee that may be waived if you deposit a certain amount of money into the account each month (usually over 1,000 CNY). Basic, no fee bank accounts are rare but some banks (Citibank, HSBC) do offer some options. Make sure to shop around and weigh all the pros and cons before settling on your future bank.
The initial deposit amount varies depending on the bank of your choosing. The minimum deposit can be anywhere from a symbolic 1 to about 100 CNY. If you wish to deposit foreign currency, the rules are usually different and will require a larger sum.
After your application goes through, you’ll get a Union Pay Card for ATM withdrawal, and after setting up your six-digit password/PIN, you will be all set for banking in China.
Keep in mind that if you are interested in investment tips or saving plans, you do need to consult a banking professional.
Online Banking in China
While most banks offer online banking options for their customers, both in English and Chinese, you can’t open a Chinese bank account online.
Mobile Payment Apps
Using your phone to pay for goods and services is not uncommon in China. Apps with QR codes that are scanned at the checkout allows for a very convenient transaction. Even some street vendors accept app payments and some places have completely switched to the new system and don’t offer other payment options at all.
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What Is the Tax System in China?
When it comes to taxes in China,not everyone needs to get down to the nitty gritty deal of figuring out what the tax isas many employers withhold the taxes from their employees already and do the monthly filing for them. However, annual tax return has to be done by every taxpayer residing in the country.
How to Calculate Individual Income Tax
Individual income tax in China has been the subject of consistent change and revision. The recent alterations were implemented in order to shift the taxing pressure off the country’s lower class. What that means is that the progressive tax rates in China were changed and the rules were made stricter for citizens with higher-income as well as foreigners.
To calculate your taxes, follow the formula:
(Pretax Income – Social Security if applicable – Standard Deduction – Additional Deductions) x Tax Rate – Quick Deduction = The Payable Taxes
While the amount of money you pay for social security varies depending on the area you live in, the standard deduction is the same for all taxpayers. Both residents and non-residents deduct 5,000 CNY per month (60,000 CNY per year) off their income.
Additional deductions include:
- Education expenses (for children and further adult education)
- Housing (loan interest and rent)
- Healthcare (for serious conditions)
- Elderly support
- Charity (under 30% of your income)
Quick deduction is a set amount of untaxable money that varies from one tax bracket to another.
What the income tax rates are for the tax brackets in China:
|Monthly Taxable income (CNY)||Income Tax Rate (%)||Quick Deduction (CNY)|
|3,000 – 12,000||10||210|
|12,000 – 25,000||20||1,410|
|25,000 – 35,000||25||2,660|
|35,000 – 55,000||30||4,410|
|55,000 – 80,000||35||7,160|
So, if you live on your own and earn the average salary of 12,000 CNY per month in Shanghai (where you do not need to contribute to social security) and have no other additional income, your monthly income tax calculations will look like this:
12,000 – 5,000 (standard deduction) = 7,000
3,000 x 0.03 (first bracket income tax rate) = 90
4,000 x 0,1 (second bracket income tax rate) – 210 (quick deduction) = 190
90 + 190= 280
That means that per month you will have to contribute 280 CNY off your 12,000 CNY salary. Per year that would accumulate to 3,360 CNY. Note that the tax rate and the quick deduction applies to the sum that you are left with after all the exemptions.
The tax year starts 1 January and ends 31 December. You have to file taxes once a year and can do so up until the following year’s 31 March.
When Do You Become a Tax Resident?
If you stay in China for more than 183 days per year, you are considered to be a full tax resident subjected to Chinese taxation on your worldwide income. In the past, some foreigners managed to avoid this title by following the five-year taxation rule, which is no longer applicable. The rule not only allowed people to be exempt from paying taxes if they stayed in the country for less than five years, but it also stated that if they leave the country for more than 90 consecutive days just before they hit the set mark, their time in the country would “reset”. The new rule removes this loophole from the system.
If China has a taxation treaty with your country of origin and you are in China for less than 90 days, youwill be taxed on income made in China, but only if the paying authority is a Chinese authority. You are exempt from being taxed if the paying authority is foreign.
When Do You Have to File Your Monthly Taxes Yourself?
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 show 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 monthly wages. This is a common practice when it comes to taxes imposed on salaries in China.
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. That also applies to taxpaying expats that live in China as self-employed workers.
They will also have to file their own annual return if:
- their annual income exceeds 120,000 CNY;
- they receive income from two or more sources in China;
- they receive income from outside China.
Other Types of Taxes in China
Apart from individual income taxes, you will also have to pay:
- Capital Income Tax, property taxes, and bonuses: After deductions, the standard rate for all of the aforementioned taxes 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 16%.
- Urban Real Estate Tax: paid by foreign house owners. The value of house property is taxed 1,2% and rental income for property is at 18%. New buildings can be exempt from this tax for the first two-three years of usage.
- Vehicle License Plate Tax: foreign car owners have to make quarterly payments of 15-80 CNY per passenger seat in their vehicles, 4-15 CNY per net tonnage for their cargo vehicles, 5-20 CNY for motorcycles, and 0,3-8 for non-motored vehicles. Truck owners have to pay 0,3-1,1 CNY per ton for motored vessels and 0,15-0,35 CNY per ton for non-motorized ones every quarter. Diplomatic representatives and business owners that operate ambulances, fire trucks, or similar vehicles are exempt from this tax.