Chinese Income Tax – About the IIT

Living and working in China as a foreigner can be rewarding and exciting, but you also have to deal with Chinese income taxes. This post is all about the income tax in China. 

But first of all, I want to disclaimer that I am not a tax professional, although I tried my best to get information from different sources and present it in this post. However, tax laws may change over time. This post is informational only, for complete guidance, you should consult a tax or finance professional. 

Who has to pay Income Tax in China?

It depends on two main aspects:

The source of your income in China

How long you stay in China

The combination of income source and stay time determines the rate of income tax in China. 

Time of stay in China

The more time you stay in China means you have to pay more income taxes. The three time-frames determine tax rules in China; the 90 days rule, the 1-year rule, and the 5-year rule. 

Source of Income in China

Where you work and who is your employer also influence the Chinese income tax rules. Income sourced within China vs income sourced outside China, moreover income paid by a Chinese company vs income paid by a foreign company is considered differently in China. 

The 90 days rule

The 90 days rule means if you stay less than 90 days in China, you have to pay income tax. If there is a tax agreement between your home country and China, this time often prolonged to 183 days. 

You have to pay individual income tax on income you have earned in China and paid by a Chinese company. The income you get from a foreign company is free from Chinese income tax, even if you have done your work in China. 

Though, senior managers in a Chinese company may have to pay income taxes on income paid by a Chinese entity, even if the work is done outside of China. 

1-year rule

If you stay less than 1-year as an ex-pat in China, you have to pay income taxes on the income you earn in China, no matter your salary is paid by a Chinese company or outside the company. 

However, if you stay less than 5-years but more than 1-year in China, then all you earn from Chinese or overseas companies is taxable. Moreover, income paid by a Chinese company for short-term work outside of China is also taxable. However, the salary paid by an overseas company for short-term work outside of China is exempted from Chinese tax rules. 

5-years rule

This rule will apply if you stay more than 5 years in China. After this time all income sources within or outside of China are counted in tax rules, so your worldwide income is taxable after 5 years stay. 

This means that the relevant time is 5-years, so this rule will apply from the sixth year in China. In China, a full year is known as the Chinese fiscal year that starts on January 1 and ends on December 31. For example, if you move to China during March 2018 the full year will be counted from January 1, 2019. 

During your stay, if you didn’t leave China for more than 30 or 90 days, it will count as a full year spent in China. 

You can break this 5-year rule and reset the time clock. You need to leave China for more than 30 days. Keep in mind that you have to leave China for more than 30 or 90 days. Moreover, the travel days in and out of China don’t count as a full day outside. 

How much Income Tax you have to pay in China?

Tax Rates

China has an advanced income tax policy, the more you earn the more tax rate applies. In China, foreigners pay the same tax rates as citizens. 

Individual Income: In China, the tax rates are slightly higher for high earners. For ex-pats, the tax rate starts from 3% of income and goes up to 45% for monthly income over 80,000 RMB.

Expats with 4,800 RMB of monthly income are tax-free in China. Moreover, each tax rate has a quick deduction. So in China, the income taxes are determined as follows:

 (Monthly taxable income x tax rate) – Quick deduction

For a business person, the tax rate starts from 5% and goes up to 35% for yearly earnings over 100,000.

For freelancers, the tax rate in China starts from 20% and goes up to 40% for monthly income over 50,000 RMB. 

Other types of individual income, like bonuses, interest, or rental earnings are often taxed at a regular rate of 20%. While there are allowances, for example, interest on a bank saving account deposit income is free of tax. 

Taxable Income in China

In Chinese income rules, taxable income contains the monthly or yearly salary, commissions and extras, cash allowances, and company offerings to overseas insurance like social security.

Besides the standard and quick deduction, several dues can be deducted. These contributions have certain standards, so for more details consult your HR department or a tax professional. 

Tax Returns 

Yearly income tax returns are due by 31 March of the following year.

If you are an employee at a Chinese company, your company must file a monthly tax report and a year-end tax return. If you don’t work in a company, it is your responsibility to file tax returns. 

After paying income tax, you will get a tax document with red stamps that show the amount you paid as tax in China. Keep this official tax document; it is required when transferring money out of China. You may also need the official tax document to claim a credit for foreign tax.

I know this is a boring topic, but if you found this helpful, please share your review in the comments below.