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Guest article by Thibaud Andre

 

The system of tax in China can be complex to navigate, especially when you’re a foreigner. How much do you have to pay? Is it the same if you’re working for a China-based company or for a company located abroad?

These are questions which can be difficult to answer, so our focus today is on Individual Income Tax (IIT) returns for expatriates in China and how to more fully understand them.

 

Which factors determine tax liability for foreigners working in China?

There are three factors which determine the degree of liability of a foreign worker:

  1. The duration of stay in China (depending on any agreements between China and the country to which an individual belongs)
  2. From where the individual’s salary is sourced
  3. Who the party is supporting the cost of the individual’s salary

The first factor can be determined by tax treaties between China and the home country of the expatriate. There are four different situations as shown in the accompanying chart.

4

Source : www.sjgrand.cn/individual-income-tax-expatriates-china-0

To be complete, tax liability is also determined by the status within the enterprise.

 

The employer and the employee share costs

Both employer and employee can be subjected to a wide range of taxes:

  • Retirement Pension
  • Housing Fund
  • Medical Insurance
  • Unemployment Insurance
  • Maternity Insurance
  • Employment Injury Insurance

The employer and employee’s shares can vary slightly as a function of their location in China and the type of insurance the foreign worker or the company is subjected to. For instance, in Beijing, for a wage between ¥2,500 and ¥15,000, the shares will be as below:

  • Retirement Pension
    • Employer 20%
    • Employee 8%
  • Housing Fund
    • Employer 12%
    • Employee 12%
  • Medical Insurance
    • Employer 10%
    • Employee 2%+3
  • Unemployment Insurance
    • Employer 1%
    • Employee 0.2%
  • Maternity Insurance
    • Employer 0.8%
  • Employment Injury Insurance
    • Employee 0.3%

To calculate the amount in terms of your individual income, visit www.sjgrand.cn/individual-income-tax-calculator.

Some parts may be updated in several places each year. There is no regulation as this update will be determined for different periods in each city.

 

Filling the Tax Return

For a foreign worker in China, tax returns must be filed on a monthly basis. An annual return is required as well if the income is above ¥120,000.

The individual might have to declare annual income by him or herself if he or she:

  • has income that is above ¥120,000
  • receives a salary from more than two employers
  • has foreign-sourced income
  • does not have a withholding agent
  • has other cases that are to be cleared by State Council

Otherwise, to pay and report IIT, the employee may use a withholding agent such as an enterprise that pays the salary to the foreign individual and is responsible for withholding the IIT, deducting it from income.

 

What Can Be Taxable Income?

table2

 

What Are the Rates?

Valid as at September 01, 2011

table3

To learn more about tax in China, visit www.sjgrand.cn/tax-and-accountancy.

 

 

374193_3011027085566_661669269_nThibaud Andre is a French consultant working at Chinese market research firm Daxue Consulting.  He is passionate about Chinese culture and likes to share insights about the many emerging markets of the Middle Kingdom.