China Tax

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China Tax Laws & Regulations 

Dealing with tax and payroll from overseas is a tricky process and poses complications that demand expert guidance. China comprises more than 20 provinces, five autonomous territories and administrative regions adding to the bureaucratic challenges.

With over 20 years’ experience in the front line of international payroll providers, Bradford Jacobs ensures our clients comply with every level of tax and employment law across the globe. Our ‘know-how’ is vital for foreign companies expanding into China.

By using our PEO-service, we will take care of the complicated legwork so that you can focus on your business goals. Bradford Jacobs’ dedicated specialists remove the burdens of worrying about these complications while you focus on building your business in a new territory.

We have made it our goal to keep track of the latest changes in tax policies to always ensure complete compliance. To keep you informed and updated too, we created this guide which includes the basic facts regarding tax regulations in China.

Overview of Taxes in China

  • Residents’ Annual Individual Income Tax: Seven tax bands 3% to 45%; Taxable income from CNY 36,000 (€4,857, US$5,625) to CNY 960,000 (€130,000, US$150,000)

  • Non-residents’ Monthly Individual Income Tax: Individual Income Tax for non-residents on remuneration and royalties is calculated on a monthly basis; Seven tax bands 3% to 45%, with a taxable income from CNY 3,000 (€404, US$468) to CNY 80,000 (€10,795, US$12,500)

  • Business Income Tax: Individuals’ income from privately-owned businesses, as sole proprietors and in partnerships is liable to progressive rates of taxation.

    - CNY 0 to 30,000 (€4,047, US$4,687): 5%
    - CNY 30,000 to CNY 90,000 (€12,144, US$14,062): 10%
    - CNY 90,000 to CNY 300,000 (€40,480, US$46,875): 20%
    - CNY 300,000 to CNY 500,000 (€67,462, US$78,125): 30%
    - Over CNY 500,000: 35%

  • Social Insurance Taxes: All Chinese employees and foreigners holding a work permit must contribute to social insurance programs, which finance funds for pensions, medical and maternity, unemployment, work related health and injury. Contributions from employers and employees vary between provinces, territories, and major cities. As a guide, the rates for Shanghai in 2021 are:

    - Pension - 8.0% (employee), 16.0% (employer)
    - Medical and Maternity - 2.0% (employee), 10.5% (employer)
    - Unemployment - 0.5% (employee), 0.5% (employer)
    - Work-related injury - 0% (employee), 0.16% to 1.52% (employer)

    Capped at monthly salary of CNY 28,017 (€3,780, US$4,377)

  • Corporate Income Tax (CIT):
    - Standard rate: 25%
    - Qualifying new high-tech enterprises: 15%
    - Qualifying software enterprises: 10%

Reduced rates apply to various categories depending on the policies of provinces, territories, and cities.

  • Value Added Tax: Rates vary between goods and services 3%, 6%, 9% and 13%
  • Withholding Tax (WHT): Rates for dividends, royalties and interest are applied according to the treaties with relevant countries.

China Individual Tax – Single, Married

Chinese nationals or foreigners working in China must pay Individual Income Tax (IIT). Foreigners or companies domiciled for more than 183 days in a calendar year are taxed on their worldwide income. 

Concessions apply for foreigners who reside in China for 183 days a year but not for more than six consecutive years. Non-residents for IIT purposes are generally taxed only on income sourced in China. 

Further complications arise from taxable income being divided into nine categories which can attract different tax rates. The categories include: 

  • employment wages and salaries
  • labor services
  • author’s pay and other royalties
  • income from a business
  • interest, dividends and profits
  • rental income from transferring property. 

Salaries, labor services, author’s remuneration and royalties are grouped as ‘comprehensive income’ on tax returns. Adding to the complexity, any ‘incidental’ income not categorized is also liable for taxation.

Married couples are taxed individually and must each file returns.

Residents’ Annual Individual Income Tax:

  • CNY 0 to 36,000 (€4,857, US$5,625): 3%
  • CNY 36,000 to 144,000 (€19,430, US$22,500): 10%
  • CNY 144,000 to 300,000 (€40,474, US$456,875): 20%
  • CNY 300,000 to 420,000 (€56,670, US$65,625): 25%
  • CNY 420,000 to 660,000 (€89,050, US$103,125): 30%
  • CNY 660,000 to 960,000 (€130,000, US$150,000): 35%
  • Over CNY 960,000: 45%

Individual Income Tax for non-residents on remuneration and royalties is calculated on a monthly basis.

Non-residents’ Monthly Individual Income Tax:

  • CNY 0 to CNY 3,000 (€404, US$468): 3%
  • CNY 3,000 to CNY 12,000 (€1,620, US$1,875): 10%
  • CNY 12,000 to CNY 25,000 (€3,373, US$3,906): 20%
  • CNY 25,000 to CNY 35,000 (€4,723, US$5,468): 25%
  • CNY 35,000 to CNY 55,000 (€7,420, US$8,593): 30%
  • CNY 55,000 to CNY 80,000 (€10,795, US$12,500): 35%
  • Over CNY 80,000: 45%

Employee Social Insurance Taxes:

  • Pension: 8.0%
  • Medical and Maternity: 2.0%
  • Unemployment: 0.5%

Capped at monthly salary of CNY 28,017 (€3,780, US$4,377)

China Individual Tax Rules

  • Individual Income Tax (IIT) has nine categories
  • Salaries, labor services, author’s remuneration and royalties are grouped as ‘comprehensive income’ on tax returns
  • Other individual categories cover dividend interest, property leases or transfers and ‘incidentals’
  • Employees can make their own return, with deductions, to the authorities or leave it to their employer
  • Employees making their own IIT return take full responsibility for errors or omissions
  • Withholding tax is applied on a cumulative basis, increasing as income increases during the year
  • Individuals are classified as a tax resident if they live in China for 183 days in a calendar year
  • IIT returns must be submitted between March 1 and June 30 of the following year
  • Married couples are taxed individually and must each file returns
  • From January 2022 expats will lose the right to claim certain deductions, therefore increasing the percentage of their taxable income

Indirect Taxes

Value Added Tax has four rates of 3%, 6%, 9% and 13% in addition to categories that are either exempt or zero-rated. They apply on mainland China with Hong Kong and Macau exempt.

  • The standard rate of 13% applies to the majority of goods and services
  • Reduced tier of 9% covers such as entertainment, restaurants and catering services, postal services, and transportation
  • Further reduced rate of 6% applies to financial, insurance and IT services, consultancy, construction, and maintenance
  • Exported products and some exported services are zero-rated

China Employers’ Social Security and Statutory Contributions

Employer Payroll Taxes

Social security contributions are mandatory in China and apply to foreign workers as well as Chinese nationals, who pay into five main funds covering medical insurance, pensions, industrial injury, unemployment, and maternity benefits. Additionally, employers and Chinese employees contribute to the Housing Fund at varying rates according to the location, but foreign employees do not pay into this fund.

  • Pension: 16.0%
  • Medical and Maternity: 10.5%
  • Unemployment: 0.5%
  • Work-related injury: 0.16% to 1.52%

Capped at monthly salary of CNY 28,017 (€3,780, US$4,377)

Other statutory employer costs include:

  • Minimum Wages: Employers must comply with minimum wage requirements, which can vary widely between provinces, cities, urban and rural areas.

    In August 2021, 13 provinces increased minimum wages – Heilongjiang, Hubei, Jiangsu, Jiangxi, Ningxia, Shanxi, Shaanxi, Tibet, Xinjiang, Zhejiang, Shandong, Jilin, Hainan – as well as the cities of Beijing and Tianjin.

    Beijing, for example, increased the monthly minimum from CNY 2,200 to CNY 2,320 (€313, US$362). Shanghai already had the highest monthly minimum of CNY 2,590 (€350, US$404). Provinces and territories may adjust minimum levels according to the cost of living and other economic factors.

China Corporate Taxes

  • Corporation Income Tax (CIT): This is 25% and returns must be filed by May 31 of the following year. Some sectors, such as agriculture, high-end technology and infrastructure development may attract reductions or exemptions, as can small, low-profit enterprises. Corporate tax is administered by regional authorities of the State Taxation Administration.

  • Withholding Tax (WHT): This applies at 10% from income sourced in China on dividends, royalties, leases, interest, and other categories of passive income

  • Capital Gains Tax (CGT): Subject to the standard CIT rate of 25%

Corporate Deductions and Capital Allowances:

Depreciation is allowed over the useful life of assets as defined by corporate income tax laws. For example: 20 years for buildings; 10 for aircraft, trains, machinery, and production equipment; four years for transport other than aircraft or trains and three years for electronic equipment. Accelerated depreciation is permitted for items with a shorter useful life.

Deductible allowances include start-up costs, research and development outgoings, interest payments on loans, charitable donations up to 12% of profit.

Avoid risks – make the right move

China’s complex and changing tax regulations demand expert advice for incoming foreign companies. Businesses cannot risk stumbling into mistakes over payroll and taxation, with the chance of fines and sanctions. Interested in learning more about how we can help you with your payroll and tax issues? Contact us today!