Individual Income Tax
Individual income tax adopts source of income as a basis to determine whether the amount is payable. Usually, salaries obtained by an employee during the working period in China, no matter paid by domestic or foreign corporations or individual employers, are categorised as income derived from China.
As in regards to an expatriate, if his or her stay in China has amounted to 90 days consecutively or accumulated stay over 90 days during the year of assessment, or his or her stay in China has amounted to 183 days consecutively or accumulated stay over 183 days during the period required by the tax agreement, he or she shall be required to account for their actual salaries obtained during his or her working period in China paid by domestic or foreign corporations or employers for the purpose of individual income tax, while his or her wages or salaries obtained when working in regions outside China are not subject to individual income tax unless they are members of senior management of domestic corporations in China.
The Basis of Assessment
Tax liability = (amount of chargeable salaries obtained inside or outside the territory of the month × tax rate – quick deduction) × salaries obtained inside the territory of the month/ total amount of salaries obtained inside or outside the territory of the month × the number of working days inside the territory in the respective month/ the number of calendar days of the month
The Official Standard Deductions for Individual Income Tax
- The standard deduction for expenses from individual income tax for Chinese residents is RMB 3,500
- The standard deduction for expenses from individual income tax applicable to expatriates is RMB 4,800
|Progressive Tax Rate and Table of Quick Deductions Applicable to Wages and Salaries|
|Level||Net Taxable Income per Month (assessable income net of deductions and allowances)||Rate(%)||Quick Deductions(RMB)|
|1||RMB 1,500 or less||3||0|
|2||over RMB 1,500 to RMB 4,500||10||105|
|3||over RMB 4,500 to RMB 9,000||20||555|
|4||over RMB 9,000 to RMB 35,000||25||1,005|
|5||over RMB 35,000 to RMB 55,000||30||2,755|
|6||over RMB 55,000 to RMB 80,000||35||5,505|
|7||over RMB 80,000||45||13,505|
Remark: Net taxable income per month (assessable income net of deductions and allowances) as stated in the above table = income from salaries of the captioned month - the standard deduction for expenses (i.e. RMB 3,500 or RMB 4,800)
The calculation of quick deduction: the amount of quick deduction applicable to the relevant grade = the maximum amount of income of the previous grade × (tax rate of the previous grade - tax rate of the previous grade) + quick deduction applicable to the previous grade
Avoidance of Double Taxation
For cross-border working foreign individual (including individuals from Hong Kong, Macau, and Taiwan), whose country has signed double taxation agreement with the PRC Government, individual income tax will not be levied by the PRC Government in the following situations:
- Be employed by companies outside China;
- The accumulated duration of residence does not exceed 183 days (from 1 January to 31 December each year) in a year;
- The salaries, which is not borne by enterprises within the territory, be paid by companies abroad.
John, who comes from America, is now working in an international company in Shenzhen as a manager of the sales department with monthly salary of $36,000.
Analysis of calculation: John’s monthly taxable income is $21,000 (i.e. 31,200 - 4,800), which is applicable to tax rate Level 4 in the above table (i.e. 25%), and the amount of deduction by quick calculation is $1005
His monthly individual income tax payable is:
individual income tax payable = taxable income × applicable tax rate – deduction by quick calculation
= 31,200 × 25% - 1005
John’s monthly individual income tax payable is $6,795, which is to be paid by John’s company to the State Administration of Taxation on his behalf.
Table on charges of individual income tax on income earned by foreigners within China
|Residence duration in China||Position of employees||Income earned within the territory to be paid or borne by enterprises within the territory||Income earned within the territory to be paid or borne by enterprises outside the territory||Income earned outside the territory to be paid or borne by enterprises within the territory||Income earned outside the territory to be paid or borne by enterprises outside the territory|
|Within 90 days or 183 days||General Employees||Levied||Not Levied||Not Levied||Not Levied|
|Senior Management||Levied||Not Levied||Levied||Not Levied|
|Over 90 days or 183 days||General Employees||Levied||Levied||Not Levied||Not Levied|
|Senior Management||Levied||Levied||Levied||Not Levied|
|1 year but less than 5 years||All||Levied||Levied||Levied||Not Levied|
|Over 5 years||All||Levied||Levied||Levied||Levied|
Residence duration in China: 183 days for residents from countries which have signed tax treaties with China while 90 days for residents from countries which have not signed.
Senior Executives: general managers, deputy general managers, directors, chief engineers, chief accountants and other similar executives of a company.
1 Year: residence within Chinese territory for 365 days in a tax year; any temporary absences from China (less than 30 days during a trip or cumulatively less than 90 days over numerous trips) within a tax year causing no deduction of the period of stay.
The Scope of the Charge for Individual Income Tax
- Income from wages and salaries;
- Income of individual industrial and commercial operators from production or business operation;
- Income from business operations contracted or leased from enterprises or other undertakings;
- Income from labor service;
- Income from remunerations to authors;
- Income from royalties;
- Income from interests, dividends and bonuses;
- Income from the leasing of property;
- Income from transfer of property;
- Accidental income;
- Other types of income specified as taxable by the financial departments under the State Council.
Exemptions for Individual Income Tax
- Awards for outstanding performances in science, education, technology, culture, public health, sports, environmental protection and other fields granted by provincial people's governments, ministries and commissions of the level of a ministry under the State Council and units at or higher than an army of the Chinese People's Liberation Army, and organisations of foreign countries and international organisations;
- Interests on government bonds and financial debentures issued by the State;
- Allowances and subsidies issued by uniform standards formulated by the State;
- Welfare benefits, pensions for the disabled and survivors and relief payments;
- Insurance indemnities;
- Decommission and demobilisation pay to officers and soldiers;
- Settlement pay, severance pay, and pensions to staff members and workers and pensions and subsidies to veteran cadres issued by uniform standards formulated by the State;
- Income of foreign diplomats, consulate officials and other officials of foreign embassies and consulates in China free from individual income tax in accordance with the provisions of the relevant laws of China;
- Dividends and bonuses income of a foreign individual obtained from foreign investment enterprises free from individual income tax;
- Income free from individual income tax in accordance with the provisions of the international conventions and agreements the Chinese government has participated in or signed;
- Other income exempted from individual income tax with the approval of the departments of finance under the State Council.
Deductions or Exemptions for Individual Income Tax are Entitled to under Following Cases
- Income of the disabled, aged widows and widowers and dependents of fallen heroes;
- Heavy losses resulting from natural calamities;
- Tax reductions with approval by the departments of finance under the State Council.