» Work+Money » Tax »

How is income tax calculated for foreigners in China?





Image by Rlicul.

Most foreign citizens whowork in China for longer than 90 days (or 183 days if your country has signed a double taxation treaty with China) are liable to pay Individual Income Tax (IIT). Here’s a guide to how it is calculated; for information on who pays income tax, see this page.

 

What you need to know

1. Article 2 of the Individual Income Tax Law of the PRC defines forms of taxable income earned by foreign citizens working in China to include income from:

  • Wages and salaries
  • Remuneration for services
  • Author’s remuneration
  • Royalties
  • Interest, dividends and bonuses
  • Lease of property
  • Transfer of property
  • Contingent income
  • Other income specified as taxable by the Finance Department of the State Council

2. The minimum tax threshold for foreign nationals working in China is normally 4,800 yuan. Income up to this level is not taxed.

3. A progressive tax rate is applied to all income earned above the 4,800 yuan threshold. See the table below to work out which tax band your Monthly Taxable Income places you inside.

 

Band

Monthly Taxable Income 
(monthly salary minus 4,800 yuan)

Tax Rate (%)

Quick Deduction

1

Income of 1,500 yuan or less

3

0

2

1,500-4,500 yuan

10

105

3

4,500-9,000 yuan

20

555

4

9,000- 35,000 yuan

25

1,005

5

35,000-55,000 yuan

30

2,755

6

55,000-80,000 yuan

35

5,505

7

More than 80,000 yuan

45

13,505

 

4. To calculate the exact amount of income tax you can expect to pay, follow the following steps:

  • Work out your monthly taxable income. Monthly taxable income = total monthly salary minus 4,800 yuan.
  • Find the relevant tax rate and “quick deduction” for your monthly taxable income.
  • Divide the tax rate by 100 to convert it from a percentage to a decimal.
  • To work out how much tax you are liable to pay, multiply the decimalized tax rate by your monthly taxable income, then subtract the “quick deduction.”

5. For example, suppose you are a foreigner earning 10,000 yuan per month in China:

  • Monthly taxable income = 10,000 yuan minus 4,800 yuan = 5,200 yuan
  • With a monthly taxable income of 5,200 yuan, you are taxed at a rate of 20 percent. Your “quick deduction” is 555 yuan.
  • Convert the tax rate from a percentage to a decimal: 20/100 = 0.2
  • Work out your final tax liability: (0.2 x 5,200) – 555 = 485 yuan
  • As your employer will deduct your 485 yuan Individual Income Tax from your salary, your final salary after tax will be 9,515 yuan

6. Excluding income made from salaries and wages, all other types of taxable income (outlined in full in number 1 above) are taxed at 20 percent of their full value.

 

Useful Chinese words and phrases

shuì Tax
个人所得税 gè rén suǒ dé shuì Individual Income Tax

 

Useful links

The State Administration of Taxation of the People’s Republic of China

Shanghai Municipal Bureau of Local Taxation

 

Similar Posts:

33 Responses to How is income tax calculated for foreigners in China?

  • Hello,

    I have been offered 30,000 RMB per month in Hangzhou i was wondering what the tax would be on this? My employer said i could apply for ”Fatiao” as a foreigner (i’m from england) but i have no idea what this is. Apparently it is to exclude me from paying tax, is this possible? Do you know what this is and how do i go about doing this?

    Thanks!

  • I am also considering a job in Guangzhou that pays around 350,000 yuan per year. I am trying to work out what my actual take-home pay will be. The person I have been in contact with reckons about 20,000 per month after taxes.
    However, he also says:
    “If this is the first time you come to China for work, there will be a possibility that you can waive all the taxes, but you need to apply for it and wait for the decision from relevant bureau. Otherwise, in general, if you get the upper end of our scale, the tax would be about RMB 50000-60000 for a year.”
    Is there such a way of waiving taxes, and, if there is, is it advisable? And how would I do this?
    Also, is this the only deduction? He also says:
    “There will be a medical insurance included, but no health care, you need to pay by yourself for going to hospital.”
    For one, I am not entirely sure of the distinction, though I have read some things about the different insurances. It is not quite clear from this whether the medical insurance is something they will add on, or whether it is deduced from the salary.

  • Hi,

    I’m evaluating an offer for Shanghai. They are offering me 16120 rmb before taxes. What is the amount of tax I need to pay from my pocket given that my employers would be paying my foreign social insurance.

    Thanks,
    Himangshu

    • Hi Himangshu. The Individual Income Tax you are liable to pay comes to 1,825 yuan each month. We are not sure which kind of social insurance your company is paying for you. If it is totally covered by the company, then the net income after tax will be 14,295 yuan. If the social insurance is the basic social insurance, you will also need contribute a portion to the insurance. The exact amount differs from city to city and province to province. You can ask your company whether the insurance is fully covered by them. Good luck!

  • Is housing considered part of salary for income tax purposes or is it taxed separately? my salary is 13500 and my housing is 5000. Would I calculate my tax at 18500? also, can I claim a deduction for my housing if it is listed as housing allowance in my contract?

    • Hi Kathryn. Housing rental subsidies from your company can be exempted from tax but only once you give your company a fapiao (a kind of official receipt) acknowledging the purchase – your company will then apply for the tax exemption on your behalf. If the company does not hand over the fapiao you will still be liable to pay the full amount of tax. 

      If you rent from a company, then that company can give you a fapiao, but if you rent from an individual it’s a little more complicated – the landlord must take his or her ID card, property ownership certificate and the rent contract to the local tax bureau to pay their rent tax before they can get the invoice. The tax rate is about 7-9 percent. You should negotiate with the landlord over who pays the tax – you or them – before signing the contract.

      There is also a limit on the amount of income that can be exempted from tax, and this differs from city to city. You should ask your company to find out the exact number.

      For more information on fapiao see this article.

  • Hello,
    I’m going to get a job in Hangzhou, and I see there are 2 kind of insurance in China, social insurance, health insurance. May I ask for the social insurance that do I need to follow it or not, because of I dont have plan to stay in China long time, so can I do not pay social insurance? Thanks.

    • Hi Camellia, generally speaking, social insurance, including basic health insurance, is compulsory. That means that every company has to register each of their employees. You can check our article on this matter. 

      Though it is legally mandated, in practice some companies don’t register their employees for the insurance scheme in order to save money and some employees themselves don’t want to pay for the insurance, either. However this is not encouraged, as the employees only pay a small portion of their salary, but in doing so they are able to claim benefits back if hospitalized or rendered unemployed. 

      In your case, it depends on whether your employer wants to register you on the scheme or not. The employer faces legal risks if they don’t pay for the insurance, while you will lose the chance to enjoy the insurance coverage. Most likely your employer will register you regardless. We wish you the best of luck in your new job!

      • I am also considering a job in Guangzhou that pays around 350,000 yuan per year. I am trying to work out what my actual take-home pay will be. The person I have been in contact with reckons about 20,000 per month after taxes.
        However, he also says:
        “If this is the first time you come to China for work, there will be a possibility that you can waive all the taxes, but you need to apply for it and wait for the decision from relevant bureau. Otherwise, in general, if you get the upper end of our scale, the tax would be about RMB 50000-60000 for a year.”
        Is there such a way of waiving taxes, and, if there is, is it advisable? And how would I do this?
        Also, is this the only deduction? He also says:
        “There will be a medical insurance included, but no health care, you need to pay by yourself for going to hospital.”
        For one, I am not entirely sure of the distinction, though I have read some things about the different insurances. It is not quite clear from this whether the medical insurance is something they will add on, or whether it is deduced from the salary.

  • Hello, I am an Indian resident.I work for a Chinese company which is not established in India. I give services to Indian customers for my company. I receive salary in my Indian bank account after deduction of taxes by my employer.Please suggest
    1.How can I save taxes in China?
    2. As India and China have DTAA, how can I save taxes in India?
    3. I get my salary in USD, if one month I get USD 550+1144.27 (Basic+Bonus) and another month I get 550+1574.98, how much tax I will have to pay in both cases?

  • Hi, I have a question about the health insurance benefit provided by my company. I was told recently by my employer that this is taxable and it will be deducted from my August salary. I’ve worked in China for just over 4 years and never heard of such a thing. I’ve checked with friends as well and said they’ve never paid tax on health insurance either. If it’s a benefit from the company, I expect that whatever tax is occurred on it would be absorbed by the company. Has some regulation changed recently or is my employer trying to pull a fast one? Thanks!

    • Hi June. There are two different social insurance systems in China. One is the national health insurance, included in the five basic social insurances, and the other is commercial health insurance.

      The national health insurance is paid in two parts on a monthly basis: one of these parts comprises two percent of your salary and is paid directly out of your wages; the other is 6-12 percent of your salary and this is paid separately from your wages by your employer. The part you pay directly goes into your health insurance card and can be used to pay for medicine and out-patient visits to the hospital. The part the employer pays goes into the country-wide social health insurance pool, and this money is ultimately used to pay for expenses if you are hospitalized. 

      Generally the part you should pay is directly deducted from your salary; this is how the social health insurance works in China. With this health insurance, you don’t need to pay tax, as your employer pays that for you.

      However, If you have private health insurance, the proportion that your company pays is considered to be part of your income and so it is indeed taxable. 

      If your friend never paid tax for their health insurance, they are most likely only covered by nationalized health insurance and not private health insurance. We hope this answer is helpful!

  • Hi One-Stop!

    I have a question that is unrelated to this specific article, but instead related to corporate taxation in China.

    The U.S. company I work for will be manufacturing a product (electronic accessory) in China. We realized that we can save on shipping costs by individually shipping out units to customers directly from this manufacturer once a week. So we will make the sales and the manufacturer will ship. Our inventory will remain in China. Sales will be made online via our product’s website to customers in the U.S., UK, and Canada.

    Would this imply that we have a physical presence in China and are therefore required to pay taxes? From my understanding, only “Resident Companies” are required to pay taxes.

    Hoping you can clear this up for me :)

  • Dear sirs,

    I am finalising the package for a new job in China. I am currently residing in Vietnam. I have two questions…
    For the first (probation?) period up to end of year, my wife and son will remain in Vietnam. My package includes school fees to be paid by company. Given that the school in Vietnam is able to provide a formal red invoice to the company, in the same way as an international school in China, can I consider this to be a tax-free benefit? Ultimately the whole family will relocate but not for the first semester.
    A similar situation would apply to the family medical insurance which we normally pay one time per year to an international company in Vietnam.

    The second question is that although tax is paid on a monthly basis, i will start on 10th August so at the end of the year, will there be any refund because of the “annual income” for 2015 being less than 12 times the monthly income?

    Thanks you very much in anticipation

    Ian

    • Hi Ian. Congratulations on your new life in China! For your first question, we need to know whether you will pay the school fee and then get the money back from your company with a fapiao (a kind of official receipt recognized by companies and the government and given to consumers as proof of purchase – for more about fapiao see this article) or whether your company will give you the money in advance. 

      If you pay the school fee yourself and then get the money reimbursed from your company, then it can be exempted from tax – though you will need to ask your company to apply for the tax exemption. However, in order to do this the school that gives you the fapiao must be based in China. Chinese tax bureaus will not accept fapiao from overseas. This means that even if your company is going to cover your children’s education fees in Vietnam, their education in that country will not be tax-free. However, when your kids move and study in China, the school fee should be tax-free. 

      If your company directly pays the school fee to you in advance of you actually paying the fee, then the fee can’t be exempted, either. 

      It is the same with family medical insurance in Vietnam.

      For your second question, we are not sure which “annual income” you are referring to. In China, individual income tax is paid on a monthly basis, so even if you start working in China in August, you won’t pay extra income tax. Therefore there is no refund. Even if your company gives you an amount of money equivalent to all of your year’s salaries, the equivalent of one month’s tax will still be paid each month. How much tax is paid depends on the calculations seen in this article.

      We hope you have a wonderful stay in China!

  • I am a foreigner and I’ve receive an offer from a firm in China ~RMB 550k p.a. Can I know how much is my monthly disposable income after income tax? Can I include deductions such as Housing rental (~ 6k per month) and return air tickets to home country (~ 9.2k per month) to reduce the tax payable? Any limit in the deduction that you can use to offset the tax?

    How about bonus computation? is that the same computation assuming a one time bonus of ~ 200k

    • Hi Blake. 550,000 yuan per year roughly equals to 45,833 yuan each month. To figure out the taxable income, we first take off 4,800 yuan, which leaves 41,033 yuan taxable income. Your tax bracket means that you pay 30 percent tax, so we then need to work out 30 percent of 41,033 yuan, which is 12,310 yuan. Finally, this sum is subject to a further deduction of 2,755 yuan. So the final amount of money you pay is 9,555 yuan. 

      So each month your salary minus tax payable should come to 36,278 yuan. However, there will be a further deduction made to pay for your social security. We unfortunately cannot estimate this figure.

      As for how to reduce the tax you have to pay, foreigners in China can use housing rental subsidies and family-visiting transport fees for tax deductions, as well as dining expenses, moving home expenses, laundry bills, business trip expenses within the country, language training fees and children’s education expenses. However, deductions will only be made if the individual gives the fapiao, tickets or other official (this means stamped with an official seal) proof to their company, which must then ask the government to apply the tax deduction. If your company pays you in cash or pays in advance then tax deductions cannot be applied. 

      The law doesn’t specify a limit on tax exemptions – ask your company if they are aware of any specific limits.

      Regarding your one time bonus of 200,000 yuan, there are two ways your company may choose to pay the tax. One is by adding it to a single month’s salary when it is given to you, resulting in a one-off payment of 245,833 yuan. 

      This will put you, for that month, in the 45 percent income tax bracket. To figure out the taxable income we must first take 4,800 yuan off that month’s payment, leaving 241,033 yuan. We must then work out 45 percent of that figure, which is 108,465 yuan; there is then a deduction from that figure of 13,505 yuan. This leaves the total amount of tax you must pay that month as 94,960 yuan. 

      The other way is for your company to divide the 200,000 yuan up by 12. The result – 16,66.67 yuan – determines the tax rate, which in this case is 25 percent.

      This means that the tax payable is a straight 25 percent of the total amount of 200,000 yuan, which is (of course) 50,000 yuan, minus a quick deduction of 1,005 yuan. This way the total amount of tax payable is 48,995 yuan, which is almost half of the amount paid through the other method. The tax will still be paid in one go by the company, and you will still receive the final sum in a single lump payment.

      The one complication with the latter calculation method is that it can only be used once a year for each person. That means that any other bonuses you may receive in the rest of the year will be calculated through the first method – adding it to your monthly salary, and potentially placing it temporarily into a higher tax bracket.

  • Hi – I’ve been offered a new but they are telling me I have to pay 45% tax in China for 2015, which seems incredible. My gross monthly salary would be US$ 14,447 or 88,705 RMB per month. Can you advise me what my tax should be and net salary. I don’t really understand the deduction system outlined above.

    • Hi Susan. We are sorry to report that there was an error in the calculations in our previous reply; please disregard that reply and instead use the following, corrected information. We regret the error.

      As per the guidelines set down in law for tax rates for foreigners, we’re sorry to say that the tax rate for an income of over 80,000 yuan in China really is 45 percent – although that’s 45 percent of your taxable income, not your total income. 

      Your monthly taxable income is worked out by deducting 4,800 yuan from 88,705 yuan, which means a total of 83,905 yuan taxable income. 

      Of that income, you pay 45 percent in taxes, minus a quick deduction of 13,505 yuan; 45 percent is 37,757 yuan – take off 13,505 yuan and the total amount of tax you are liable to pay is 24,252 yuan.

      Thus, the after-tax income for you is 64,453 yuan (88,705 yuan minus 24,252 yuan in tax). However, the actual pay that you take home will still be less than this amount due to the automatic deduction of social security payments

      The Chinese government taxes more as your income grows higher, and unfortunately your salary falls into the highest tax rate band. We hope this reply helps explain what’s going on.

  • Is it true that expenses (rent, food), confirmed by receipts, may also be added to non-taxable income? And if yes, should these receipts be company issued? (e.g., how would one go about getting a receipt from a landlord?)

    • Hi Tim. We are sorry to report that there was an error in our previous reply; there are indeed some forms of tax deduction available for individuals within China, though you must have an official fapiao to get the reimbursement. please disregard the previous reply and instead use the following, corrected information. We regret the error.

      For foreign individuals, the following expenses can be deducted from individual income tax: housing rental subsidies, dining expenses, moving home, laundry bills, business trip expenses within the country, family-visiting expenses, language training fees and children’s education expenses . However, please remember that they can only be exempted from tax when you give an official fapiao to your company, which must then apply for the tax exemption in your name. If the company does not hand over the fapiao, you will still be liable to pay the full amount of tax.

      There is also a limit on the amount of income exempted from tax, and this differs from city to city. You should consult with your company to know the exact number.

      For companies, the taxable income is calculated after removing any expenses from the gross income, so any type of official fapiao (发票, fāpiào) such as those of rent, dining and transport, can be used. For more information on fapiao, see this page. Handwritten receipts and other signs of purchase that do not have the official government stamp cannot be used in this way.

      If you rent from a company, then that company can give you a fapiao, but if you rent from and individual it’s a little more complicated – the landlord must take his or her ID card, property ownership certificate and the rent contract to the local tax bureau to pay their rent tax before they can get the invoice. The tax rate is about 7-9 percent. You should negotiate with the landlord over who pays the tax – you or them – before signing the contract.

  • Is the basic pension plan that you mention in your article refer to the housing fund? Is there a minimum percentage that an employer needs to pay because I see from your article the employer will pay about 20% of the total salary.

    Thanks

    • Hi Jeff. The basic pension plan is not the housing fund. Generally speaking, an employee in China is entitled to five basic insurances plus the housing fund, and the pension plan is one of the five basic insurances. The pension fund is for the purpose of meeting your basic needs when you retire, while housing funds are for you to buy property.

      The minimum percentage an employer needs to pay differs from province to province, but all come to about 20 percent, which is also subjected to change from year to year. For example, Guangdong Province reduced the ratio from 20 percent to 13-15 percent in January 2015.

  • i have been working for this company for 2 years. my income is RMB 8000. I always receive RMB 6961.50 after tax. Is this an accurate tax deduction? Please help

    • Hi Ernest. The article above shows how your individual income tax is calculated, which in your case should be 215 yuan. However, the actual amount of money you receive after tax also incorporates the deductions made to pay for the “five insurances” and housing fund, as well as any penalties your bosses may place, such as failure to complete your workload, and any bonuses you may receive. The ratio of the insurance differs from company to company, so it is hard to tell whether the actual amount of pay you are receiving is accurate or not.

      You could your employer to give you your monthly pay slip, where you can see each item that adds up to the final figure you receive.

  • Hi! I have two questions regarding taxes, is the social insurance scheme mandatory for foreigners in China? Your previous reply seems to imply it is, however I have read here and there that it depends on your employer and the province you’re in (I’m currently in Shanghai).
    Also, is it legal for a company to split a salary between RMB (taxable) and USD (non taxable)? If not, any repercussions for the employee ? Thanks!

    • Hi Alex. Any business employing foreigners on the Chinese mainland must pay towards their social security contributions, just like they must for Chinese staff, regardless of where they are in China. For information on how those social security contributions break down, you can see this article.

      Employers may refuse to process their employees’ taxes each month, instead leaving it for the employee to go to their local tax office and pay the taxes directly out of their own wages. Unlike not paying social security, this is legal - although it is discouraged. The amount of tax payable will be exactly the same as if your company had paid it.

      Regarding the split salary, it sounds to us like your company is using a tax avoidance scheme that is legal but certainly not encouraged! If you want to be sure, however, we suggest that you speak to a finance advisor, and particularly a specialist on the subject of wages in China.

  • I have a doubt regarding the taxes, the company I plan to work for said they wouldn’t with hold any tax or remit it for me, how do I go about paying taxes ? Is there any agency or organization who could help with that?

    Thank you

    • Hi Aaquib. Your company really ought to be paying your taxes to the government, although it’s not illegal for them to refuse to do so. Since they have declined to pay them for you, you need to go to your city’s tax bureau. You can pay the money there. The amount of tax you pay will be the same as if your company was paying it. 

      Please note that although they can choose not to pay your taxes, your company should certainly be paying your social security contributions – if they are not doing that then they are acting illegally.

  • Hi,

    Sorry, this might be a daft question, but what is the ‘quick deduction’ and where has it been calculated from?
    Thanks :)

    • Hi Laura. A quick deduction is an amount set by the government that should be deducted from your pre-taxation income. This way, you’re not paying tax on the full amount that you earn; there’s always an amount that you get to keep for yourself.

  • if I need to get a salary net of any tax total of 61,500 RMB, what salary should i ask my employer for, appreciate sharing with me the formula for this calculation

    Thanks

    • Hi George. Congratulations on the new job! If you want to receive 61,500 yuan per month, you should ask for 93,240 yuan. That means you will pay 9,240 yuan towards your social security plan, and 22,215 yuan of income tax. That means taking home a total of 61,785 yuan.

      If you ask for more than that you will be bumped up to the next tax bracket. We think that the highest you can go without entering the higher tax bracket is 94,350. That means paying 9,350 yuan to social security and 22,585 yuan for your income tax, leaving a total of 62,415 yuan.

      Note that there may be some variations based on how your company does its taxes, so we cannot guarantee this will be exactly right. This is all at your own risk.

      Of course, the fastest way may be to ask your employer to pay you 61,500 yuan “after tax” and let them work it out!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>