By Victor Tu
Many Foreigners come to China and they obtain salaries from their employers or charge fees from providing independent service to their client. Most of time, they might confuse the rules of the China Individual Income Tax (IIT). Today we will take a look at the basic information of that.
1. Who should file the individual income tax returns?
If you are hired by an employer, the company has the responsibility to withhold the IIT and file the tax returns to the tax bureau each month for you. As an employee, you have the right to get the salary breakdown form, on this form, you will see the information like basic salary, performance salary, penalties, telecommunication grants, social insurances (as a foreigner, if you have), IIT, and after-tax salary etc. and at the year end, you could ask your company’s accountant to print out your yearly Certificate of IIT payment from the tax bureau.
In another case, you are not an employee of an employer, nevertheless, you are an independent contractor (i.e. free-lancer, Designer or IT engineer), you need to sign a service contract with your client and take it with Identification Document to tax bureau to issue an invoice for your client. In meanwhile, at that moment, you need to file your IIT returns and pay the tax immediately.
2. What kind of the Income will be imposed for IIT?
In China, there are 11 types of individual income will be taxed
2.1 Wages, salaries
2.2 Income from production, operation derived by industrial and commercial households
2.3 Income from contractual or leasing operations to enterprises or institutions
2.4 Service income
2.5 Authors remuneration
2.7 Interest, Dividends
2.8 Lease of property
2.9 Transfer of property
2.10 Contingent income
2.11 Other income specified as taxable by the finance department of the State Council
Note: So far, China implements classified individual income tax rule rather than comprehensive rule, which means when you calculate the IIT, each type of income will be separated, because the calculation method is totally different.
3. If I only live on the salary from an employer, what is my tax rate?
In China, IIT uses the progressive rate (7 brackets), from 3% to 45%.
As a foreigner, you could obtain a monthly RMB 4,800 tax exempt allowance, which means if you earn pre-tax RMB10, 000 per month, your taxable income is only RMB 5,200 and then you are going to pay IIT RMB 485, the actual tax burden is 4.85%. Likewise, if you get paid RMB 20,000 per month, the IIT is RMB 2,795, the rate is almost 14%. The social insurances are ignored in the case.
4. As a Foreigner, Do I have any other tax holiday?
Yes. You do. In accordance with the IIT rules, as a foreigner, if you obtain these welfare or benefits from your employer, these are tax exempt from IIT.
4.1 Meal allowance
4.2 Housing allowance
4.3 Laundry allowance
4.4 Relocation allowance to/from China
4.5 Per diem allowance on business trips inside or outside China
4.6 Travelling expenses for home leave for expatriate only
l Tow round trips per year
l Place where spouse or parents live
4.7 Language allowance
4.8 Children’s education allowance
To sum up, these are only very basic IIT rules for your reference, for more information, I will continue writing the articles or you could contact me on (86)139 5786 1900 and email@example.com. Thanks.
Keywords: Ningbo accounting, Ningbo Auditor, Ningbo accountants, Ningbo CPA
Victor & Truman，CPAs 宁波纬度会计师事务所（普通合伙）