Individual income tax threshold in China is expected to rise from the current 3500 yuan level to 5000 yuan ($775.5) per month, or 60,000 yuan per year according to the amendment draft. The individual income tax was the third major contributor to China's total tax revenue, following value-added tax and enterprise income tax. This standard will also be applicable to those who have no domestic residence but receive an income from wages in China, as well as those who live in China but receive an income from overseas wages.
In addition, the draft amendment adds special expense deductions for items like children's education, continuing education, treatment for serious diseases, as well as housing loan interest and rent, to reduce tax burdens for taxpayers, raise people's income and boost domestic consumption.
Individual Income Tax for Expats in China
China’s Individual Income Tax (IIT) Law stipulates that all individuals working and deriving income from within the territory of China are subject to IIT. While Chinese nationals are taxed on all income sourced both domestically and overseas, non-Chinese nationals are only taxed on income deriving from within China. Though IIT is usually filed by employers’ HR and payroll teams on behalf of employees, both parties should be aware of tax thresholds, and implement sufficient salary planning to reduce tax liability. Furthermore, individuals are required to make annual declarations before the end of the financial year. In this article, we give a general overview of how IIT works for foreign nationals working China.
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Monthly taxable income is calculated after a standard reduction of RMB 4,800 for foreign nationals, including residents of Hong Kong, Macau, and Taiwan. Whether or not income is sourced inside or outside of China is determined by how long an individual has actually worked in China. The following income types are deemed China-sourced income regardless of where the payment is made:
(1) Income from providing services in China;
(2) Income from leasing property to a lessee for use in China;
(3) Income from transferring property located in China, such as buildings and land-use rights;
(4) Income from licensing the use of proprietary rights in China; and
(5) Interest, dividend, and bonus income derived from companies, enterprises, and other organizations or individuals in China.
China’s tax authorities have been stepping up anti-tax evasion measures in recent years, having improved investigation methods aimed at foreigners. Expatriates and their employers should there seek to ensure IIT is being paid in a correct and timely fashion, and to conduct annual declarations.
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