Tax Season: How Much Tax Will I be Paying Working in China?
When teaching abroad or working abroad in general, you will typically be paid in each country’s local currency and may be responsible for local income taxes, which can vary greatly by the nation. In this article, we’re focusing on the individual income tax in China.
- Tax in China is calculated per month. As a result, tax is calculated based on monthly salary.
- A flat RMB 4,800 pre-tax deduction for foreign nationals per month, which means you’re not paying tax if making under RMB 4,800 per month.
- Your employer will withhold taxes on a monthly basis.
- Rent and social security（五险一金）are deductible.
Tax Bracket (China’s State Administration of Taxation (SAT) for 2017)
|Tier||Earnings in RMB||Tax Rate|
|1||1 – 1,500||3%|
|2||1,501 – 4,500||10%|
|3||4,501 – 9,000||20%|
|4||9,001 – 35,000||25%|
|5||35,001 – 55,000||30%|
|6||55,001 – 80,000||35%|
An Example Tax Calculation
If you earned 9,800RMB a month
- Deduct the 4,800 tax free allowance first. 9,800 – 4,800 = 5,000
- 4,000 is over the first tax bracket, 1,500. So split the earning 4,000 with multiple brackets.
- 1st bracket (rmb 1,500). rmb 1,500 x 3% = rmb 45
- 2nd bracket (5,000 – 1500 = rmb 3,500). 3,500 x 10% = rmb 350
- Total tax per month = 45 + 350 = rmb 395
If you earned 9,800RMB a month but paid $2000 in housing rent every month, then we will factor in the deductible.
- Deduct the 9,800 tax free allowance first. 9,800 – 4,800 = 5,000
- 5,000 – 2,000 = rmb 3,000 remaining
- 3,000 is over the first tax bracket, 1,500. So split the earning 3,000 with multiple brackets.
- 1st bracket (rmb 1,500). rmb 1,500 x 3% = rmb 45
- 2nd bracket (3000 – 1500 = rmb 1500). Rmb 1500 x 10% = rmb 150
- Total tax per month = 45 + 150 = rmb 195
Other Forms of Taxable Income in China
Taxable income includes all compensation received by an employee, including amounts received directly or indirectly from work performed for the employer. Here’re some common items,
- Base salary
- Expatriate premiums
- Cost-of-living allowances
- Mobility premiums
- Equity-based compensation
- Employer contribution to social security overseas
- Dividends – dividends of investment income are typically taxed at a flat rate of 20%. Dividends paid out by companies listed on the Chinese stock exchanges are taxed at rates ranging from 5 – 20%, depending on the holding period.
Social Security in China
This area is a bit unclear due to the lack of an official guideline by the Chinese government. Only recently has China required that expatriates participate in China’s social insurance system.
The US does not have a social security agreement with China. As a result, the US tax on social security for ex-pats may be doubled.
China has social security in the following five areas:
- Medical Care
- Work-Related Injury
- Maternity Insurance
Chinese social security costs are set at a provincial level and will depend on the location of your source of income. The rate is around 10% of pre-tax income. The total cost of social security is cost significantly higher but mostly covered by your employer, and you pay the remaining 10%.
In general, when an employer in China employs an employee, the employer and the employee would co-pay the premiums of endowment insurance (pension), medical insurance, unemployment insurance, maternity insurance, and work-related injury insurance. However, in reality, there are no unemployment benefits for foreign employees; as an ex-pat is not employed in China, then the personnel will not be permitted to continue living in China.
The Length of Stay in China Will Have an Impact on Tax
The length of the stay in China will result in different outcomes on your tax obligation.
Note that the definition of a full year is that you didn’t leave China for more than 30 full consecutive days or more than 90 cumulative days. Some countries extend to 183 from 90 days if a tax treaty is in place.
|Time spent in China||Income earned in China||Income earned outside of China|
|Income borne by Chinese entity||Income borne by foreign entity||Income borne by Chinese entity||Income borne by foreign entity|
|Less than 90 days||Taxable||Exempt||Exempt||Exempt|
|Over 90 days to 1 year||Taxable||Taxable||Exempt||Exempt|
|1 year to 5 years||Taxable||Taxable||Taxable||Exempt|
|Over 5 years||Taxable||Taxable||Taxable||Taxable|
You’ll be held responsible for the same tax liabilities as Chinese residents are once have lived in China for over five years. The condition of 5 full consecutive years means the tax rule applies from the 6th year onward spent in China. You’ll be paying tax based on the worldwide income.
Tax Filing Deadline
The employer is responsible for filing individual income tax withholding returns on a monthly basis and settle the tax payments by the 15th day of the month following the date of receipt of income. The annual tax year ends on December 31. Individual income tax returns are due by March 31 of the following year. No extension is allowed, so you’ll be paying the penalty for late filing.
This article is a reference, not an official tax guide. We’re not a tax lawyer. You’re responsible for the action, and consult HR of the company, school, or tax lawyer for advice.