“Nothing is certain but death and taxes.” Although neither is pleasant to encounter, they are both unavoidable. So then, this post focuses on how foreign nationals working in China pay individual income tax for their gains in China.
I. For what income shall individual income tax be paid?
The taxable items most related to foreign nationals working in China as stipulated by Article 2 of the Individual Income Tax Law of the PRC include:
(1) Income from wages and salaries;
(2) Income from remuneration for services;
(3) Income from author’s remuneration;
(4) Income from royalties;
(5) Income from interest, dividends, and bonuses;
(6) Income from lease of property;
(7) Income from transfer of property;
(8) Contingent income; and
(9) Other income specified as taxable by the Finance Department of the State Council.
II. How is China’s individual income tax calculated?
1. Tax rate: As provided in the 2011 revision to the Individual Income Tax Law of the PRC, aside from earnings from salaries and bonuses (“wages”), all income shall be taxed at full value with a tax rate of twenty percent.
2. Minimum tax threshold: The minimum tax threshold for domestic nationals is normally RMB 3,500 yuan. According to the Regulations for the Implementation of the Individual Income Tax Law of the PRC, foreign nationals working in China who meet the conditions in law may add an additional deduction of RMB 1300 yuan, increasing the minimum tax threshold to RMB 4,800 yuan. But, it is important to note that this increase in the minimum threshold is limited to the following two kinds of foreign workers:
“(1) Foreigners working in foreign invested companies and foreign companies in China;
(2) Foreign experts hired by the domestic companies, institutions, social organizations, or state organs.”
Therefore, those who would like to enjoy the higher minimum tax threshold must first acquire the foreign worker license and foreign expert certificate.
According to the above threshold, the foreigners’ monthly taxable income is equal to her monthly income minus deductable expenses (social insurance fees) and the minimum tax threshold (RMB 4, 800 yuan). The income from wages uses a progressive tax rate ranging from three to forty five percent.
3. The progressive tax rate: Progressive tax rate means that the tax rate increases progressively as the taxable base amount increases. According to the current Individual Income Tax Law, income from wages is taxed at different levels as the taxable base amount increases. Please see the following list of tax rates and the quick deduction for easier calculation:
(1) Below RMB 1, 500 yuan: tax rate 3%, quick deduction RMB 0 yuan;
(2) Ranging from RMB 1,500 yuan to RMB 4,500 yuan: tax rate 10%, quick deduction RMB 105 yuan;
(3) Ranging from RMB 4,500 yuan to RMB 9,000 yuan: tax rate 20%, quick deduction RMB 555 yuan;
(4) Ranging from RMB 9,000 yuan to RMB 35,000 yuan: tax rate 25%, quick deduction RMB 1005 yuan;
(5) Ranging from RMB 35,000 yuan to RMB 55,000 yuan: tax rate 30%, quick deduction RMB 2755 yuan;
(6) Ranging from RMB 55,000 yuan to RMB 80,000 yuan: tax rate 35%, quick deduction RMB 5,505 yuan;
(7) Above RMB 80,000: tax rate 45%, quick deduction RMB 13,505 yuan;
4. The calculation method: To use Shanghai as an example, supposing the monthly wages of a foreigner are RMB 50,000 yuan, her taxes payable could be as follows, considering whether social insurance is counted in or not:
(1) Social insurance paid: (50,000 – (2,338.74 + 4,800)) × 30%) – 2,755 = 10,103.38
(2) Social insurance unpaid: ((50,000 – 4,800)×30%) – 2,755 = 10,805 yuan.
It is essential to note that the social insurance standards are varied throughout China. Therefore, taxes payable may be different when calculated with the social insurance standards of cities.