China Individual Income Tax for Foreigners as of 2019
On 31 August 2018, the China’s National People’s Congress (NPC) passed the Draft Amendment to the People’s Republic of China (PRC) IIT Law, with the amendments becoming effective from 1 January 2019.
Apart from the loosened administration measures on the tax deductible costs and expenses for corporate income tax, significantly reduced effective tax rates for value added tax, the renewed individual income tax law (hereinafter referred to as “New IIT Law”) has also provided a big relief on the tax burden of personal income, to make sure each individual can benefit from the tax reduction policy to a certain extent.
I. Introduces the definition of “resident” and “non-resident” for tax purposes
Taxpayer status | Definition | Taxable income |
Resident taxpayers | China-domiciled individuals Non-China-domiciled individuals who stay in China for 183 days or more in a calendar year | Both China sourced and non-China sourced income are subject to IIT |
Non-resident taxpayers | Non-China-domiciled individuals Non-China-domiciled individuals who stay in China for less than 183 days in a calendar year | Only China sourced income is subject to IIT |
II. “ Five-year rule” upgraded to “ Six-year rule”
As a special relief for resident taxpayers who are not domiciled in China, the New IIT Law upgraded the former Five-year-rule to the current Six-year-rule on their worldwide income tax payment obligation in China, which is, for a resident taxpayer who is not domiciled in China, his/her personal income derived from outside China which is not paid or borne by a Chinese individual or entity can be exempted from China IIT, unless the individual has resided in China for no less than six calendar years before, in each of which he/she resided in China for 183 days accumulatively or more and without leaving China for more than 30 days in a single trip.
III. Higher standard deduction threshold
Amendments to the Individual Income Tax Law of the People’s Republic of China were passed on 31 August 2018 and new tax calculation methods came into effect on 1 October, 2018, the standard deduction applicable to ‘taxable income’ in China has increased from a monthly RMB 3,500 for resident taxpayers (and RMB 4,800 for non-residents) to RMB 5,000.
IV. Tax calculation for resident taxpayers
The following progressive tax rate brackets are applied on the annual comprehensive income of a resident taxpayer, which includes wages and salaries, labor remuneration, author remuneration and royalties. Annual taxable income is annual income after standard deduction of RMB 60,000, employee's portion of China social security contribution and special additional deductions.
Annual taxable income ＝ Annual income － Annual standard deduction － Cumulative itemized deductions expenses / tax-free fringe benefits － Other cumulative deductions
Tax payable ＝ Annual taxable income × applicable tax rate － Quick deduction
Individual Income Tax Rates and Deductions in China (Table I) The tax rates are applicable to wages and salaries, labor remuneration for resident taxpayer
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About foreign individuals tax-free fringe benefits:
F rom January 1st 2019 to December 31st 2021 , For resident taxpayers who are foreign expatriates living in China, they can choose to enjoy either deduction for additional itemized deductions, or continue to enjoy tax-free fringe benefits such as housing benefit, language training, child education expense with no double benefits claim. And they cannot switch within the same tax year once elected.
From 2022,01.01, Foreign individuals will no longer enjoy above tax-free fringe benefits. They should enjoy itemized deductions.
V. Tax calculation for non-resident taxpayers
The IIT for non-resident taxpayers are still calculated on a monthly basis applying the following monthly progressive tax rates.
Monthly taxable income ＝ Monthly income － RMB 5000 (Standard deduction)
Tax payable ＝ Monthly taxable income × Applicable tax rate － Quick deduction
Individual Income Tax Rates and Deductions in China (Table II) The tax rates are applicable to wages and salaries, labor remuneration, author remuneration for non-resident
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VI. Tax calculation on annual bonus
- Annual bonus for resident taxpayers: the preferential tax treatment on annual bonuses remains unchanged until 31 December 2021, meaning that each resident taxpayer can choose whether to include their annual bonus in their comprehensive income or have it taxed separately.
- The bonus can be taxed separated from the annual income and be divided by 12 to determine the applicable monthly tax rate (according to Table 2), which may lower the effective tax rate to a certain extent.
- Tax payable ＝ Annual Bonus × Applicable tax rate － Quick deduction
- Starting from 1 January 2022, annual bonus compensation must be included in comprehensive income for IIT calculation.
Individual Income Tax Rates and Deductions in China (Table II) The tax rates are applicable to wages and salaries, labor remuneration, author remuneration for non-resident
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