Paying 2017-2018 income tax in China? Read this.
If you live and work in China, or if you get income from some other source based there, it’s important to understand your duties when it comes to taxes. Chances are that you’ll have to make a tax declaration, and pay tax on at least some of your income in China, although what tax you’ll pay depends on your personal circumstances.
This overview of the Chinese income tax system will be enough to introduce you to the processes and requirements. If you think you might need to pay tax on some or all of your income in China, it’s advisable to get professional advice to make sure you pay the right amount.
What income is taxable in China?
Tax on earnings in China is called individual income tax, and sometimes shortened to IIT. The tax system in China is relatively complicated, and can feel unfamiliar to newcomers. Income from a variety of sources is subject to tax - but the levels at which it’s taxed depend on the source.
There are 11 possible sources of income which could be taxed in China:
- Employment income
- Business income (sole proprietorship)
- Business income (contract or lease basis)
- Payment for labour services
- Author's remuneration
- Royalties
- Interest, and investment income such as dividends
- Rental income
- Capital gain from transfer of property
- Incidental income.
- Any other income deemed to be taxable by the Ministry of Finance of the State Council.
Exactly how your income is classified will depend on your circumstances. If you’re new to the Chinese income tax system, taking professional advice is essential.
(Source, 14 December 2017)
Who has to pay income tax in China?
The way you’re classified for tax purposes will depend on a few things.
If you’re Chinese and live in mainland China, you’re considered to be domiciled there. That means you have your primary ties to China, personally and economically.
If you’re a Chinese national, from anywhere other than Hong Kong, Taiwan or Macau, the chances are you’ll be classed to be domiciled in China, even if you don’t usually live there. That’s because it’s assumed you’ll still have strong links back to the country, even if you’re away.
If you’re a foreigner - or if you’re from Hong Kong, Taiwan or Macau - the rules are a little different. How you’re taxed not only depends on how long you’re in China, but also where the income you’re earning comes from. If it’s earned from a Chinese business, for example, it’ll be dealt with differently compared to if you earn income from a foreign employer.
If you’re a resident of Hong Kong, Taiwan or Macau you’re considered to be a foreigner in China.
Here are the different categories applied:
Foreigners visiting China, staying less than 90/183 days
If you’re in China for less than 90 days in a particular tax year, and your income comes from an overseas employer with no permanent base in China, you don’t have to pay tax in China. If you’re from a country with a double taxation agreement with China, then this is extended to mean you’re able to stay for up to 6 months - 183 days - without having to pay tax.
Don’t forget that the country you lived in for the rest of the tax year is likely to want some tax from you, too.
Foreigners in China for less than a year
If you live in China for more than 90/183 days, but less than a year, then you’re taxed only on income derived from China. But again, the country you lived in for the rest of the tax year might also want some tax from you.
Foreigners in China for more than a year, but less than 5 years
If you’re in China for between 1 and 5 years, you’ll pay tax in China on your worldwide income, but with some concessions available to reduce the tax burden.
Foreigners in China for over 5 years
From the start of the 6th year of tax residence in China, you’ll pay full tax on your worldwide income in China.
(Source, 14 December 2017)
In what instances do Chinese residents working abroad need to pay income tax?
If you’re a Chinese national, from the mainland of China, you’re likely to be deemed to have a domicile in China even if you don’t live there. That means you’ll be liable for tax on your worldwide income, in China, even if you don’t live there.
If you’re a foreigner, and have residency in China, your taxes are calculated along the lines set out above. However, it’s a good idea to seek advice from a professional if you start to work abroad after becoming a Chinese resident, to make sure you don’t fall foul of the law.
What are the income tax rates in China in 2017-2018?
China has a progressive tax system, so a progressively higher tax rate is applied based on how much you earn. There’s a deduction built into the system, which means that for each band of taxation you get a different tax free amount. Effectively you have to work out your earnings per month at that tax bracket, multiply it by the tax rate, and then take off the deduction to figure out how much tax you owe. Did we mention, it’s a fairly complicated system?
The tax levels are different for employed people, and those who are self-employed or business owners. If you’re self-employed it also matters what type of work you do - you’re taxed differently if you sell a professional service, for example, compared to if you run a physical business.
The most up to date rates available for resident taxpayers in China are as follows:
| Gross monthly income range | China income tax rate (%) 2017 | Deduction (￥) |
|---|---|---|
| Up to ￥1,500 | 3% | 0 |
| ￥1,500 - ￥4,500 | 10% | 105 |
| ￥4,500 - ￥9,000 | 20% | 555 |
| ￥9,000 - ￥35,000 | 25% | 1,005 |
| ￥35,000 - ￥55,000 | 30% | 2,755 |
| ￥55,000 - ￥80,000 | 35% | 5,505 |
| Over ￥80,000 | 45% | 13,505 |
If you’re self-employed and run a business - a sole proprietorship for example - the rates are different, and based on your annual income:
| Annual taxable income | China tax rate (%) |
|---|---|
| Up to ￥15,000 | 5% |
| ￥15,000 - ￥30,000 | 10% |
| ￥30,000 - ￥60,000 | 20% |
| ￥60,000 - ￥100,000 | 30% |
| Over ￥100,000 | 35% |
However, if you’re earning as a self-employed person offering a service - let’s say you’re a graphic designer, or a medical professional working independently - then you’re taxed in a different way. Again, this is based on your monthly earnings from self-employed work:
| Monthly taxable labour service income (￥) | China tax rate (%) |
|---|---|
| Up to ￥20,000 | 20% |
| ￥20,000 - ￥50,000 | 30% |
| Over ￥50,000 | 40% |
Earnings from the other sources mentioned in the beginning of this article- such as royalty payments - are taxed at a flat rate of 20%.
(Source, 14 December 2017)
What are the tax exemptions in China?
The Chinese tax system has a number of exemptions, deductions and credits depending on your personal situation, in addition to the quick deduction outlined in the table above. To be eligible for any of these allowances you have to include them on your tax declaration.
Here are some of the exemptions, deductions and credits that you might need to know about.
Personal deductible items
You can deduct a set amount from your income before you calculate your tax. However, the exact calculation depends on your circumstances, so you’ll probably need to get some professional advice when it comes to doing the math. You can also offset payments made for certain things, such as charity donations, against your taxable income. There are limits and rules about how you do this, set out in the guidelines to the tax return.
Professional/business deductible items
There are different deductions available for people working as entrepreneurs, or running a business. Exactly what you could be entitled to will depend on your circumstance. Self-employed people offering services rather than selling goods, are also allowed to remove a certain amount from their gross earnings before calculating tax - but exactly what they can do depends on the overall income level of the individual.
(Source, 14 December 2017)
What are the tax penalties in China?
The Chinese authorities are serious when it comes to tax evasion. If you pay late, you’ll be subject to a daily fine until you do pay, which is the equivalent of 0.05% of the bill. However, if the case is serious you could be subject to a fine which can run up to a whopping 5 times the total amount unpaid or underpaid.
(Source, 14 December 2017)
What sort of double taxation agreements are there with China?
It’s possible for someone to be liable to pay tax in 2 countries. In that case, you have to rely on double taxation treaties to ensure that you only pay tax once on your earnings.
China has double taxation agreements with over 100 countries, including the following:
| China double taxation agreements | |
|---|---|
| Armenia | Lithuania |
| Austria | Luxembourg |
| Azerbaijan | Macedonia |
| Argentina | Morocco |
| Albania | Moldova |
| Algeria | Mongolia |
| Australia | Malaysia |
| Bahrain | Nepal |
| Brunei | Netherlands |
| Bangladesh | New Zealand |
| Bosnia and Herzegovina | Norway |
| Belarus | Nigeria |
| Belgium | Oman |
| Bulgaria | Philippines |
| Brazil | Pakistan |
| Croatia | Poland |
| Cyprus | Portugal |
| Canada | Qatar |
| Chile | România |
| Czech Republic | Russia |
| Cuba | Saudi Arabia |
| Ethiopia | Seychelles |
| Egypt | Singapore |
| Ecuador | Slovenia |
| Estonia | Slovakia |
| Finland | South Africa |
| France | Sudan |
| Germany | Spain |
| Georgia | Syria |
| Greece | Sri Lanka |
| Hungary | Turkmenistan |
| Israel | Trinidad and Tobago |
| Iran | Tajikistan |
| Indonesia | Turkey |
| Ireland | Tunisia |
| Iceland | Thailand |
| India | Ukraine |
| Italy | UAE |
| Japan | Uganda |
| Jamaica | UK |
| Kuwait | USA |
| Kazakhstan | Uzbekistan |
| Kyrgyzstan | Venezuela |
| Korea | Vietnam |
| Laos | Zimbabwe |
| Latvia |
(Source, 14 December 2017)
How do I pay income tax in China?
Income tax reporting is usually done on a monthly basis in China. Your employer will most likely withhold tax from your salary, and do the filing on your behalf. You still have to do an annual tax return though. The tax year is the same as the calendar year. And your annual tax return is due in the year following the tax year, on 31 March.
If you’re an expatriate, you might find you need to transfer money to a bank account in China, to cover your tax bill for instance, from a bank account held in a different country or currency. International transfers like this can be surprisingly costly, so make sure you take into consideration any charges that will be added and also the exchange rate used when converting your cash.
It’s good to check the exchange rate is fair, because banks and money exchange services often don’t give customers the real, mid-market rate, which you’d find on Google. Many mark up the rate by 4-5%. They keep the difference, and you pay more than you need to.
Instead of a traditional bank or money exchange service, you could get a far better deal if you use Wise. That’s because Wise works differently to banks. Your currency exchange will always be done with the real mid-market exchange rate, and just a small, upfront fee.
This is possible because Wise doesn’t use the pricey SWIFT system for making bank transfers, but they use local transfer methods instead. This brings down the costs of making international transfers, and the savings are passed on to the customer. Simple.
Taxes, on the other hand, are rarely simple. They’re especially complicated if you’re an expatriate working abroad, or if you juggle life between different countries. But they’re still your responsibility.
Whatever happens, you don’t want to be out of pocket because of unfair fees added to your currency conversion. If your bank or regular money exchange service is ripping you off, Wise might be able to help. See if you can get a better deal from Wise if you find yourself needing to pay your taxes abroad.
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