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The Taxation System in China

Posted by: DongNi Jiang
Category: Business in China
Tax Documents

The Chinese Taxation System – China Tax Main Table

Broadly defined as having profit <500,000 RMB/year

2As outlined by the Chinese Government

 

Individuals working in China Mainland are also taxed. The tax is called Individual Income Tax (IIT) and is levied according to 11 different categories of income:

Table Developer @SJGrand

If you work in China, I suggest having a clear picture on how the IIT works on your salary. Normally, the employer directly withholds the rate proportioned to your salary every month. Even if it’s automatic, I’d rather be sure that the portion of money you don’t see every month is correct.

For wages and salaries, Chinese employees may deduct 3,500 RMB for the calculation of the IIT; while foreigners deduct 4,800 RMB.

How to calculate the IIT for Chinese employees and for expatriates?

Table Developer @SJGrand

IIT calculation (the social insurance and housing funds to be deducted are in accordance with Shanghai’s rates)

Chinese Staff

Tax liability = gross salary + taxable benefits – employee social insurance contribution – mandatory housing fund employee mandatory housing fund contribution – RMB 3,500

Tax payable = (taxable income x applicable tax rate) – quick deduction

Example

Gross salary= RMB 15,000

Employee social insurance contribution= RMB 1,286

Employee mandatory house fund contribution= RMB 818

Tax free threshold= RMB 3,500

Tax liability= 15000 – 1,286 – 818 – 3,500 = 9,396

Tax payable= (9396 x 0.25) – 1,005 = 1,344

Net salary= 15000 – 1286-818-1,344=11,552

Expatriate Staff

Tax liability = gross salary + taxable benefits – deductible expenses – employee social insurance contribution – RMB 4,800

Tax payable = (taxable income x applicable tax rate) – quick deduction

Example:

Gross salary= RMB 15,000

Deductible expenses= RMB 500

Employee social insurance contribution= RMB 1,286

Tax free threshold= RMB 4,800

Tax liability= 15,000 – 500 – 1,286 – 4,800 = 8,414

Tax payable= (8,414 x 0.20) – 555 = 1,127.8

Net Salary= 15,000 –1286- 1,127.8 = 12,586.2

 

Review the types of taxes you will be subject to, including their amount and specific periodicity.

The text you read above should be referenced as general information and should not be solely relied upon for tax decisions. I highly advise professional consultation as each project may have different tax implications.

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Author: DongNi Jiang

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