Taxes are often one of the most confusing topics for many people, especially in a country like China with a significant language barrier and complex laws that change frequently. 

Many of our clients need clarification on how much taxes to pay and when to pay them. 

This article will give you an overview of China’s current individual income tax laws. It should help you know the essential rules, how much taxes you should be paying, and the special regulations for foreigners. 

Do foreigners need to pay income taxes in China? 

What type of income gets taxed in China? 

How much taxes do you need to pay in China? 

Are there any special deductions for foreigners? 

When are tax are individual income tax returns due? 

Do foreigners need to pay income taxes in China? 

Like in most countries, the Chinese state tax administration wants to ensure that everyone who earns income in the country pays their fair share of tax, regardless of nationality. 

The Chinese state tax administration divides its taxpayers into residents and non-residents. Nationality does not matter. 

This distinction is vital because calculating your taxes depends on your tax resident classification. 

Tax Resident 

For individual income tax, a resident is a Chinese or non-Chinese citizen who spends 183 days or more in China during the tax year. 

If you are classified as a tax resident, your international income is also subject to individual income tax in China. 

Non-Resident 

Those who spend less than 183 days in China during the tax year are non-residents for individual income tax purposes. 

What type of income gets taxed in China? 

In general, tax residents in China should pay tax on the income they earn worldwide, not only the income they receive from China-based sources. 

On the other hand, non-tax residents only need to pay individual income tax on the income they make from Chinese sources.

Types of Income 

Individual income in China is broken down into nine parts: 

• Employment income, such as wages and salaries;
• Remuneration for labor services;
• Author’s remuneration;
• Royalties;
• Business income;
• Interest, dividends, and profit distribution;
• Rental income;
• Income from transfer or property;
• Incidental income; 

Each income type has its tax rate(s), allowable deductions, etc. 

For residents, your comprehensive income combines employment income, remuneration for labor services, author’s remuneration, and royalties. Each year these combined sources of income get taxed together. 

How much taxes do you need to pay in China? 

Residents and non-residents pay different tax rates. The tax calculation is progressive, which means that the more income you earn, the more taxes you pay. 

To have a rough estimate of how much taxes you should pay on your taxable income, use the following formula: 

(Annual taxable income x tax rate) – Quick deduction

Table 1: Income Tax Rates for Residents

How does non-residents’ income get taxed? 

Suppose you are not a tax resident, meaning you spend less than 183 days in China. In such cases, the tax calculation is different. 

Each type of income gets calculated monthly instead of annual basis.

Table 2: Individual Income Tax for Non-Residents

What is the difference in the taxation of non-residents and residents’ income? 

This method differs from the resident calculation because the resident’s employment income, remuneration for labor services, author’s remuneration, and royalties combine and gets taxed together each year. 

Business income tax rates 

Your income is subject to individual income tax if you earn money from a privately-owned business, sole proprietorship, or partnership. This is different from corporate income tax (CIT), as that is on the businesses’ income, not yours. 

The tax rate is progressive, from 5% to 35%, depending on how much money you make. The table below shows how it works: 

Table 3: Business Income Tax Rates

Tax rates for other personal income 

For other forms of income, such as incidental income, rental income, interest income, dividends, and capital gains, there is a flat rate of 20%. However, the China state tax administration may make some exemptions. 

Local income tax 

In many countries, there is also local, state, or provincial income tax. China does not have that; taxes are paid at the state level. 

Are there any special deductions for foreigners? 

To answer the question right away, no. Deductions are based on tax residency. Tax residency is not based on nationality but on how much time you spend in China during the year.  

Everyone loves deductions because they allow you to pay fewer taxes. Deductions are extraordinary expenses you pay throughout the year that you can use to reduce the amount of your income that can get taxed. 

Thankfully, they are a big part of the new China individual income tax law. 

The law allows “special deductions” and “other deductions.” Below are some examples of each category. 

“Special deduction” includes these four items: 

• Basic endowment insurance
• Basic medical insurance 
• Unemployment insurance 
• Housing accumulation fund 

“Other deductions” include these: 

• Annuities;
• Commercial health insurance;
• Tax-deferred pension insurance 
• Original value of property 
• Taxes and fees that are allowed to be deducted 

There are also specific additional deductions. Which include:

• Child education
• Continued education
• Mortgage interest
• Rental expense
• Elderly care 
• Major medical expense 

When are tax are individual income tax returns due? 

You should tax returns from April 1st through June 30th each year. 

Let us help you with your Individual Income Tax (IIT)

Let’s face it; taxes are complex. We are here to help you reduce your tax burden, so you don’t have to pay unnecessary taxes and can benefit from the most allowances and deductions. 

Our team has over a decade of tax accounting experience and is always ready to help you grow your business. 

Feel free to contact us anytime for tax advice or compliance services.