How is the taxation in China

China Income Tax: How It Is Calculated

Not only for Chinese citizens is there income tax liability in China: Also Foreigners living in China should deal with the topic. Whether there is any tax liability at all depends on two aspects: the source of income and the time spent in China. If a taxpayer is now subject to Chinese income tax, the level of tax rates and the tax exemptions are particularly important.

Income tax in China since 2011

In September 2011, a new income tax rate came into effect in China. The fundamental reform of the Individual Income Tax was intended to to relieve low-income citizens financially and to increase the tax burden on higher earners. The basic monthly allowance increased from RMB (Renminbi Yuan) 2,000 to RMB 3,500. The monthly deduction for foreigners living in China is a uniform RMB 4,800. The nine-stage system for staggering income tax rates, which was in effect until 2011, has also been replaced by a seven-stage model.

The levels with the tax rates of 15 and 40 percent fall out of this new system. While the lowest rate for salaries and wages in the previous system was 5 percent for wages up to RMB 500, the maximum amount in the first tier is now RMB 1,500 and is taxed at 3 percent. The The maximum rate is 45 percent and applies to taxable income over RMB 80,000. The taxable income is determined by the monthly income (salaries and wages) minus the basic allowance and the employee's share of the social security contributions.

Quick deduction

To make it easier to calculate tax rates, there is the "Quick Deduction Method", also called quick deduction. The monthly income is multiplied by the tax rate of the corresponding level, and the deductible amount is then deducted from this result.

A Example illustrates this calculation method: The monthly taxable income is RMB 30,000. This amount is now multiplied by the tax rate of 25 percent. The deduction amount of RMB 1,005 is then deducted from the result. The tax payable in this example would be RMB 6,495.

Income tax for foreigners

Foreign nationals living in China (including Hong Kong, Taiwan, and Macau) are also subject to Chinese income tax. In this case, the income received from an employer (whether domestic or foreign) is taxable, while the Service provision in China took place.

It all depends on the period

Time spent in China also plays an important role in determining income tax liability. Keeps an employee less than 90 days during a calendar year in China, he only has to pay tax on the income received in China, which is paid by the Chinese employer. For residents of countries with which there is a double taxation treaty, the period increases to 183 days. This agreement prevents income from being subject to repeated double taxation in another country.

Employees who stay in China for more than 90 or 183 days must pay tax on their entire income. However, this does not apply to income that was generated outside of China. A stay of more than one and less than five years, on the other hand, means the taxation of all income generated in China and abroad that is paid by Chinese companies. Foreign persons who based in China for more than five years are taxed on their world income. From the sixth year of residence onwards, the income tax calculation is applied again as at the beginning of the stay. This means that the sixth year is treated like the first year in China. The rule of 90 or 183 days comes into force again and income is taxed accordingly.

Taxation in addition to income from salaries and wages

Non-employment income is also subject to income tax in China. Which includes Income from industrial and commercial productionthat was provided independently, rental and leasing, services, license fees, investment income, sales proceeds, bonuses or grants for employees and other income. Depending on the type of income, these are subject to a tax rate of between 5 and 35 percent.

to gather information

Chinese income tax is not always easy to understand, especially for foreigners living in China. Which income has to be taxed at which point in time is without a intensive examination of the income tax liability not obvious in China. The breakdown of different employment relationships and residences often requires expert help.

China income tax table

Monthly income

tax rate

Quick deduction

up to 1,500 RMB

3 percent

1,501 to 4,500 RMB

10 percent

105

4,501 to 9,000 RMB

20 percent

555

9,001 to 35,000 RMB

25 percent

1.005

35,001 to 55,000 RMB

30 percent

2.755

55,001 to 80,000 RMB

35 percent

5.505

over 80,000 RMB

45 percent

13.505

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