Understanding Chinese Taxes

Liable Income Tax, also known as IIT, are the taxes one is required to pay from their monthly salary, and yes, foreigners working in China must pay this IIT as well. While most companies will pay this on your behalf, it’s important to know exactly what bracket you fall into, how much you should be paying, and make sure they aren’t taking out more than they should be.

Key Factors of your IIT

• How much you earn in your monthly salary

• How long you’ve been in China for

• Any outside income coming from abroad

Income Brackets

Photo & Information Source: www.ecovis.com/focus-china/

Taxable income in China isn’t limited exclusively to your salary. It also includes bonuses, commissions, and more. 

There are, however, basic tax exemptions that can be applied for. For locals the maximum exemption is RMB 2500, while for foreigners it is RMB 4800

Furthermore, for each individual taxation grade there is a quick deduction amount which will be exempted additionally for this level of taxable income. 

Here’s a quick formula to calculate Your IIT: 

【(Gross Monthly Taxable Income– 4800) * Tax Rate】– Quick deduction

Duration of Stay and Payment Source

Another crucial point in determining your IIT liability is the duration of your stay in China, as this will determine how much of the outside income is taxable by Chinese authorities.

There are a few main timeframes that define one’s IIT liability: 

1 Day to 90 Days 

For this last point it is important to note where the income is coming from. If you’re being paid your salary in China by a Chinese company, then you will be liable to pay IIT from day 1. 

However, if your salary is paid by a company outside of China, then you are not required to pay IIT in China, unless you stay in China for more than 90 days at one time. It may also be important to note that for specific countries with a tax treaty between China and the foreign country, the 90-day period is typically extended to 183 days.

1 Year to 5 Years

For those of you being paid out-of-China income by a Chinese company (a rare occurrence to say the least), they will not have to pay IIT unless they stay in China for more than 1 year at a time. 

Last but not least, are for the long-term expats, residing for 5 year or more. In this bracket, all overseas incomes, paid by either Chinese or oversea companies, is all eligible for taxation by Chinese authorities. 

Confused yet? Well don’t worry. You should be. As we mentioned earlier, typically employers will pay this IIT on behalf of their employees, reducing it from their monthly salary automatically. However, if they are not assisting you in applying for the exemption amount (RMB 4800 for foreigners) that may be something you should look into to help ease your own tax burden. In order to apply for the tax exemption don’t forget to collect your own individual “fapiaos” ! 

Related Articles