With China’s expatriate community growing due to the nation’s role in the global economy, it might be a good time to examine what expatriate employees should know about China’s individual income tax (IIT) regime.
Who Is Taxed? Chinese law states that persons who live on the mainland, or live in the country for a total of 183 days in a tax year, are recognized as tax residents.
“Only after remaining in the country for six straight years, however, without leaving for more than 30 days, will global income be taxed,” wrote Frank Tang in the South China Morning Post, “but non-residents pay taxes only on income earned in China.
What Income Is Taxed? The ITT applies to individuals earning wages, salaries, pay for authors or personal services, plus income from royalties, business operations, interest, dividends and bonuses. Taxes are also levied on property leasing or transactions, as well as on contingent income.
What Is China’s Individual Income Tax Rate? Tang explained that China uses a seven-tier progressive income tax system. Expatiates who earn 36,000 yuan ($5400 US dollars), the tax rate is 3 percent. On the other hand, if an expatiate earns 960,000 yuan ($144,000 US dollars), the tax rate is 45 percent.
Are There Any Tax Breaks? Expatriate workers have the same income tax rate and thresholds as Chinese nationals. However, they are entitled to special deduction items, to include housing rental, children’s education and continued learning. This break is scheduled in end in 2024.
Tax Breaks At the Municipal Level? It depends on where an expatiate works and lives. In order to attract talented workers, nine cities in the southern province of Guangdong provide a subsidy to cover the gap between the domestic tax rate and the much lower one in Hong Kong.
“This subsidy only applies to “high-end” overseas talent living in the region before the end of 2023, such as innovative researchers and management staff,” added Tang.
Of note, the island province of Hainan, China’s largest free-trade zone, has capped the individual income tax rate for highly qualified talent at 15 percent until 2025.
Tang explained that expatriate workers making more than 250,000 yuan ($37,500 US dollars) annually will be eligible for the tax break.
Expatriates who reside in Hainan for more than 183 days annually are subject to a three-tier progressive system, with rates of 3 percent, 10 percent, and 15 percent before 2035.