Resources - Taxation system in China

Taxation system in China

(here you will find some information about the taxation system in China, tax rates, corporate income taxes, personal taxes and import duty)

Taxation system in China

(here you will find some information about the taxation system in China, tax rates, corporate income taxes, personal taxes and import duty)

Personal income tax for persons employed in China.

How high are the taxes in China? Is the foreign employee supposed to pay taxes? If so, what types of taxes are applicable? Undoubtedly, many people who had some contact with China already asked themselves those questions. In Western countries, we are familiar with corporate income taxes, which are paid by companies, and various kinds of personal income taxes, which are deducted from our salaries.
Many foreign workers in China are not legally employed, so they don’t know much of Chinese taxation system. But recently more and more Western companies are opening their representative offices and subsidiaries in China. If we are employed in China by the Chinese company, our situation is very straightforward: we are subjected to the Chinese tax law. But what if a person works in China for foreign company and receives the income from abroad?
The application of taxes depends on the time of residence. If this person habitually resides in China for more than 90 days (or 183 days in the case of several states, who signed income tax treaty with the PRC) he/she may also attract liability for individual income tax. Some benefits, such as housing subsidies, are exempted from taxation. They are controlled by the tax bureaus, and the beneficiary should provide documents, proving that the benefits are non-taxable.

Since the October 2011, foreign employees in China are required to pay social security contributions, which include:

  • Basic pension insurance
  • Basic medical insurance
  • Work-related injury insurance
  • Unemployment insurance
  • Maternity insurance

Like in many other countries, some of those expenses are covered by the employer, while the remaining by the employee. We need to keep in mind that China is a country divided for 23 provinces, every of which have its own rules or law interpretations. In order to properly calculate the tax-related expenses, we should contact the local tax office. For the reference purposes, we provide the following example of an estimated tax calculation:

Example:
1 RMB = 0.16 USD = 0.12 EUR = 0.10 GBP
Engineer from Germany, working in Guangzhou, income:
14 000 RMB gross.
The maximum tax base:
EMPLOYER
Basic pension insurance 22% (RMB2, 571)
medical insurance 12% (RMB1, 403)
insurance against accidents at work 0.5% (RMB58)
unemployment insurance 2% (RMB234)
maternity insurance 0.5% (RMB58)
TOTAL - RMB 4,324

EMPLOYEE pension 8% (RMB935)
medical insurance 2% (RMB234)
insurance against accidents at work 0%
unemployment insurance 1% (RMB117)
Maternity insurance 0%

TOTAL: RMB 1,286
TOTAL EMPLOYER’S EXPENSES: RMB14000 + RMB4,324 = RMB18,324
Under the new provisions, the labor cost in China for foreign workers increases significantly. Those changes affect the persons, whose salary was below RMB10,000, because the higher management and specialists are already subjected to the maximal tax base. Therefore, the cost of employment may rise by one third.
FOR REFERENCE: Interim Measures for the Participation in Social Insurance of Foreigners Employed in China